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AUTHENTICATED ,
US. GOVERNMENT
INFORMATION ^

UNACCOUNTABLE GOVERNMENT: GAO REPORTS
SHOW FEDS STRUGGLING TO TRACK MONEY
AND PERFORMANCE

HEARING

BEFORE THE

COMMITTEE ON OA^RSIGHT
AND GOA^RNMENT REFORM

HOUSE OF REPRESENTATDH]S

ONE HUNDRED THIRTEENTH CONGRESS

FIRST SESSION

JULY 10, 2013

Serial No. 113-45

Printed for the use of the Committee on Oversight and Government Reform

Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform

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For sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

JOHN L. MICA, Florida

MICHAEL R. TURNER, Ohio

JOHN J. DUNCAN, JR., Tennessee

PATRICK T. McHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

PAUL A. GOSAR, Arizona

PATRICK MEEHAN, Pennsylvania

SCOTT DesJARLAIS, Tennessee

TREY GOWDY, South Carolina

BLAKE FARENTHOLD, Texas

DOC HASTINGS, Washington

CYNTHIA M. LUMMIS, Wyoming

ROB WOODALL, Georgia

THOMAS MASSIE, Kentucky

DOUG COLLINS, Georgia

MARK MEADOWS, North Carolina

KERRY L. BENTIVOLIO, Michigan

RON Desantis, Florida

ELIJAH E. CUMMINGS, Maryland, Ranking
Minority Member

CAROLYN B. MALONEY, New York
ELEANOR HOLMES NORTON, District of
Columbia

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

JACKIE SPEIER, California

MATTHEW A. CARTWRIGHT, Pennsylvania

MARK POCAN, Wisconsin

TAMMY DUCKWORTH, Illinois

ROBIN L. KELLY, Illinois

DANNY K. DAVIS, Illinois

PETER WELCH, Vermont

TONY CARDENAS, California

STEVEN A. HORSFORD, Nevada

MICHELLE LUJAN GRISHAM, New Mexico

Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Stephen Castor, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director

(H)

CONTENTS

Page

Hearing held on July 10, 2013 1

WITNESSES

The Hon. Gene L. Dodaro, Comptroller General of the United States: Accom-
panied by Ms. Nancy Kingsbury, Steve Sebastian, Gary Engel, Asif Khan,
Robert Dacey, Chris Migm

Oral Statement 4

Written Statement 7

(III)

UNACCOUNTABLE GOVERNMENT: GAO RE-
PORTS SHOW FEDS STRUGGLING TO TRACK
MONEY AND PERFORMANCE

Wednesday, July 10, 2013,

House of Representatives,

Committee on Oversight and Government Reform,

Washington, D.C.

The committee met, pursuant to call, at 9:36 a.m., in Room 2247,
Rayburn House Office Building, Hon. Darrell Issa [chairman of the
committee], presiding.

Present: Representatives Issa, Mica, Turner, Duncan, McHenry,
Jordan, Walberg, Lankford, Amash, DesJarlais, Gowdy, Woodall,
Collins, Meadows, Bentivolio, Cummings, Maloney, Lynch,
Connolly, and Duckworth.

Staff Present: Ali Ahmad, Majority Communications Advisor;
Molly Boyl, Majority Senior Counsel and Parliamentarian; Law-
rence J. Brady, Majority Staff Director; John Cuaderes, Majority
Deputy Staff Director; Adam P. Fromm, Majority Director of Mem-
ber Services and Committee Operations; Linda Good, Majority
Chief Clerk; Michael R. Kiko, Majority Staff Assistant; Mark D.
Marin, Majority Counsel; Tegan Millspaw, Majority Professional
Staff Member; James Robertson, Majority Senior Professional Staff
Member; Katy Rother, Majority Counsel; Laura L. Rush, Majority
Deputy Chief Clerk; Scott Schmidt, Majority Deputy Director of
Digital Strategy; Peter Warren, Majority Legislative Policy Direc-
tor; Rebecca Watkins, Majority Deputy Director of Communica-
tions; Jedd Bellman, Minority Counsel; Krista Boyd, Minority Dep-
uty Director of Legislation/Counsel; Beverly Britton Fraser, Minor-
ity Counsel; Jennifer Hoffman, Minority Communications Director;
Elisa LaNier, Minority Director of Operations; Dave Rapallo, Mi-
nority Staff Director.

Chairman IsSA. The committee will come to order.

The Oversight Committee exists to secure two fundamental prin-
ciples. First, Americans have a right to know the money takes from
them is well spent. And second, Americans deserve an efficient, ef-
fective government that works for them. Our duty on the Oversight
and Government Reform Committee is to protect these rights. Our
solemn responsibility is to hold Government accountable to tax-
payers, because taxpayers have a right to know what they get from
their government. It is our job to work tirelessly in partnership
with citizen watchdogs and the GAO to deliver the facts to the
American people and bring genuine reform to the Federal bureauc-
racy.

( 1 )

Imagine beginning every month not knowing how much money
you have and not being able to track what money has been spent.
Personally, in our family it is unthinkable. Yet month after month,
year after year, that is exactly where the Federal Government op-
erates. The American people are periodically reminded of this when
we talk about the upcoming debt ceiling. And yet the debt ceiling
seems to move not by hours or days, but by weeks and then months
and often nearly a year, as money is somehow found and consumed
that was claimed not to be there.

That is not entirely a shell game, but rather the reality that
until they go looking for it, they don’t know where it is. When they
find it, they often don’t know how much they have. It is unbeliev-
able, it is unverifiable. And it is unaccountable. We have no idea
how much money is spent and how much we owe. We have yet
close approximations.

And more and more. President Obama keeps asking the Amer-
ican people to trust government and to give them more authority
with your money. For all the promises of reform and modernization
in government, the reality is, the promises have fallen short, no re-
form has occurred, and in fact, this committee has found that it is
harder and harder to get execution of existing accountability.

As chairman at this time, I have to remember that this is not
a new problem. Is it a problem exacerbated by new government
programs? Certainly the looming Affordable Care Act creates the
likelihood that we will be administering over a large portion of our
gross domestic product at a Federal level.

In fact, later in this July session, we will be looking at whether
we can secure the records of every American’s taxes, I repeat, every
American’s taxes, when they are put out as part of the Affordable
Care Act. This is a large undertaking, and one that involves huge
privacy issues.

Now, health care records and your income and financial spending
wouldn’t seem to be linked, except they are all linked by whether
or not computer systems work. They are all linked by whether ac-
counting systems work, and they are all linked by whether or not
the system the government employs to authorize people to make
entry, to oversee entry and to analyze the actual current state all
is the same.

So the accuracy of your health care, the protection of your pri-
vacy and whether we can track tax dollars all are effectively the
same problem. But rather than looking at an individual who finds
themselves with their entire health record on the internet, or per-
haps millions of veterans who find that their personal information
was taken home on a laptop and somehow the laptop was lost and
as a result personal information can be available on millions of
Americans.

In the case of the GAO’s look, and its blunt, straightforward
analysis that this government is broken, allows us to see it quan-
titatively in dollars and cents. This is not to say that this problem
began on this President’s watch, but it is this President’s watch, it
is the ranking member’s watch and it is my watch.

So today, we want to say to the American people, don’t expect
miracles, but do expect government to begin performing basic math
better. We live in the 21st century. There are companies who today

are trying to figure out how to reacquire tens of billions of dollars
that are stranded overseas from their profits that did not exist, I
repeat, did not exist when many on the dais came to Congress.
Companies have been formed, accounting systems created, vast ca-
pability to analyze and be accurate to the penny and meet the re-
quirements of public accounting have occurred with companies that
did not exist a decade ago.

If we can create great institutions from scratch, tilt them up and
make their information secure and available to seven billion people
around the world and do it in the time that Mr. Cummings and I
have served in Congress, then how is it that we are worse off, no
better off when it comes to government accountability than we
were at the time that my ranking member and I came to Congress?
That is part of why we will hear today, and I recognize the ranking
member for his opening statement.

Mr. Cummings. Thank you very much, Mr. Chairman. And I
thank you for holding this hearing.

I want to thank you, Mr. Dodaro, for testifying today. I appre-
ciate the work that you and your staff have put into the reports
that form the basis for your testimony today. And I trust that you
will express the appreciation of our committee for the very hard
and excellent work.

This hearing focuses on two areas that are the core of this com-
mittee’s jurisdiction: government financial data and government
performance data. In order to be efficient and effective, the govern-
ment has to know how much money it has, how much money it is
spending, and whether that money is being spent wisely. The Gov-
ernment Accountability Office performs an audit each year of the
consolidated financial statements of the government, which are
prepared by the Department of Treasury in coordination with the
Office of Management and Budget.

In January, GAO reported that it could not, could not express an
opinion on the audit of the government’s books for fiscal years 2011
and 2012. This is not a new problem. GAO has not been able to
express an audit opinion on the government’s books since it started
performing these audits in 1997.

The Department of Defense is one of the main reasons GAO is
unable to give an audit opinion. The DOD is responsible for more
than half of the Federal Government’s discretionary spending, but
it is unable to prepare auditable financial statements. GAO has in-
cluded DOD financial management in its high risk list in 1995.

In its 2013 high risk report, GAO said this: “DOD is one of the
few federal entities that cannot accurately account for its spending
or assets. It is one of three major impediments that prevent GAO
from rendering an opinion on the annual consolidated financial
statements of the Federal Government. Without accurate, timely
and useful financial information, the DOD is severely hampered in
making sound decisions affecting its operations.”

On the other hand, the Department of Homeland Security has
made major improvements. For the first time, DHS received a
qualified audit opinion for fiscal year 2012. This is the result of a
concerted effort by the Secretary and other DHS officials to im-
prove the Department’s financial management. It is also the result

of the work of this committee holding the Department accountable
through hearings and briefings.

Fiscal responsibility is about more than just balancing books. It
is also critical for the government to know whether the money that
is spent is doing what it was intended to do. In 2011, the President
signed into law the Government Performance and Results Mod-
ernization Act of 2010. That law was sponsored by Representative
Henry Cuellar and it was approved on a bipartisan basis by this
committee. The Act required GAO to conduct assessments of the
law’s implementation, and on June 26th, GAO issued its report.
GAO found that the government has made major strides through
implementation of the law.

John Kominsky, a senior fellow with the IBM Center for the
Business of Government, offered this conclusion as his takeaway
from the GAO report: “The key story that stands out for me is that
the conceptual framework of the GPRA Modernization Act and the
actual use of its provisions, such as priority setting and data driven
progress reviews, are seen as effective by agency managers.”

GAO also found a number of areas that need improvement. For
example, GAO found that agencies are not doing enough to track
issues that cut across agencies, such as climate change and food
safety. I look forward to hearing GAO’s recommendations for how
the government can do better, both in terms of financial manage-
ment and performance management.

With that, I yield back.

Chairman ISSA. I thank the gentleman. All members will have
seven days to submit opening statements and extraneous materials
for the record.

We now recognize our panel. We recognize the Honorable Gene
Dodaro, who is the Comptroller General of the United States. We
ask the following GAO advisors accompanying Mr. Dodaro to stand
and be sworn at the same time. And if there are any others other
than the ones I mention, please let me know.

Nancy Kingsbury, Ga^ Engel, Robert Dacey, Steve Sebastian,
Asif Khan and Chris Mihm. Is that complete? Would you please
rise and raise your right hand to be sworn?

Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, the whole truth and nothing but
the truth?

[Witnesses respond in the affirmative].

Chairman IssA. Let the record indicate that all witnesses an-
swered in the affirmative.

Mr. Dodaro, you have been here so often that to say please bear
in mind that your entire statement will be placed into the record
would be redundant. So I will dispense with that. The gentleman
is recognized.

WITNESS STATEMENT

STATEMENT OF GENE DODARO

Mr. Dodaro. Thank you very much, Mr. Chairman, Ranking
Member Cummings, members of the committee. I am pleased to be
here today to discuss GAO’s Audit of the Consolidated Financial
Statements of the Federal Government, and also our assessment of

the initial implementation of the Government Performance and Re-
sults Modernization Act of 2010.

As it relates to the financial management of the Federal Govern-
ment, we reported 21 of the 24 largest departments and agencies
were able to receive an unqualified opinion for fiscal year 2012
statements. However, as has been pointed out in opening state-
ments, there are serious material weaknesses in internal controls
and financial reporting that have prevented us from being able to
give an opinion on the consolidated financial statements of the
United States Government. The three major impediments are seri-
ous financial management problems at the Department of Defense,
the inability to eliminate intra-governmental transactions among
Federal departments and agencies, and an ineffective process to
compile the financial statements of the Federal Government.

DOD, 0MB and Treasury are all seeking to rectify these weak-
nesses. But our assessment is that much more work needs to be
done in order to address these issues and put the Federal Govern-
ment in a position where it can get an opinion on its consolidated
financial statements.

We were also unable to express an opinion on the statement of
social insurance, which covers Social Security and Medicare pro-
grams, due to the uncertainties associated with the estimates for
restraining cost growth under the Medicare program.

With regard to other areas we pointed out in that report, we also
pointed out that there were internal control weaknesses in im-
proper payments and computer security across the government,
and made other observations and recommendations.

Now, with regard to performance management, the Moderniza-
tion Act of 2010, the initial implementation of setting up the re-
quirements for the Act has taken place. The Administration has set
interim cross-cutting goals, the agencies have set priority goals.
They have assigned responsibilities as outlined in the Act for per-
formance officers in the departments and agencies, and they are
beginning to hold quarterly progress reviews, performance reviews
that are required under the Act.

However, there are a number of significant areas that we pointed
out where there are remaining weaknesses and opportunities for
improvement. First of all, we find little improvement in the use of
performance measurements and information from the survey we
did for this work in 2012, compared to 1997. So there is a need to
really increase the use of the information and the usefulness of the
information there as well. We also pointed out where there are
areas where there have been difficulties in measuring performance
that have yet to be overcome, for example, in the grants and con-
tracts area. So there is a lot of room for improvement and actually
developing better, more complete and useful performance meas-
ures.

We found there were missed opportunities in cross-cutting areas
across the government where programs were included to be meas-
ured, but not tax expenditures. So the performance at tax expendi-
tures needs to come under greater scrutiny as well as to whether
it is achieving its objectives or not, and assessing government-wide
priority goals as well.

We also found the law requires that there be a public website set
up to increase transparency. That has been done, but the website
can be improved greatly in terms of its usefulness and trans-
parency. We made recommendations that more work is done
inassessing the needs of people in the Congress and the public to
use that information to make it more transparent and useful to the
American public.

We also found little evidence of meaningful consultations with
the Congress.

Chairman IssA. Could you repeat that?

Mr. Dodaro. Yes. We found little evidence that there were mean-
ingful consultations with the Congress in this case, and made rec-
ommendations there be better documentation. One of the main ob-
jectives of this Act, even though the original 1993 Act required con-
sultations with the Congress, the 2010 Act was to increase those
consultations and require them to be documented by the agencies
in their reporting. That hasn’t been done to, we think, the inten-
tions and the expectations of the Congress.

So we made many recommendations in all these areas to 0MB.
They have agreed to implement all the recommendations, so we
will be tracking their progress in our future reports on these areas
as well as on the consolidated financial statement.

So just in closing, I would say, and I want to underscore, mean-
ingful improvement in financial management and performance
management will not occur without greater leadership on the part
of the Executive Branch and rigorous oversight by the Congress. It
is needed in order to have financial and performance data that are
commensurate with dealing with the significant problems we have
in the Federal Government, both fiscal management and perform-
ance. I applaud the committee for holding this hearing, and I look
forward to continuing the work with you and the Congress and the
Administration in bringing about meaningful reform.

Thank you.

[Prepared statement of Mr. Dodaro follows:]

United States Government Accountability Office

GAO

Testimony

Before the Committee on Oversight and
Government Reform, House of
Representatives

For Release on Deiiveiy

Expected at 9:30 a.m. EOT
Wednesday, July 10, 2013

FINANCIAL AND
PERFORMANCE
MANAGEMENT

More Reliable and Complete
Information Needed to
Address Federal
Management and Fiscal
Challenges

statement of Gene L. Dodaro

Comptroller General of the United States

GAO-1 3-752T

GM>

Hi ghlights

Highlights of GAO-1 3-752T, a testimony
before the Committee on Oversight and
Government Reform, House of
Representatives

Why GAO Did This Study

To operate as effectively and efficiently
as possible and to make difficult
decisions to address the federal
government’s management and fiscal
challenges, Congress, the
administration, and federal managers
must have ready access to reliable and
complete financial and performance
information— 430th for individual federal
entities and programs and for
government as a whole. GAO is
required to annually audit the
consolidated finandal statements of
the U.S. government in addibon, GAO
is required to periodically report on
federal agendas’ efforts to increase
the use of performance Information in
government and to take a more
crosscutting and integrated perspective
on performance.

This testimony presents the results of
GAO'S recent audits and reviews
related to (1) the U.S. governments
consolidated financial statements for
fiscal year 2012, and (2) executive
branch implementation of key
provisions of the GPRA Modernization
Act of 2010.

What GAO Recommends

Over the years, GAO has made
numerous recommendations directed
at Improving federal financial
management. The federal government
has generally taken or plans to take
actions to address GAO’s
recommendations. GAO has also
made numerous recommendations to
0MB to more fuity impiement the
GPRA Modernization Act of 2010.

0MB staff agreed with these
recommendations.

View GAO-1 3-752T. For more information,
contact Robert F. Dacey or Gary T. Engel at
(202) 512-3406, or J. Christopher Mihm at
(202) 512-6806,

FINANCIAL AND PERFORMANCE
MANAGEMENT

More Reliable and Complete Information Needed to
Address Federal Management and Fiscal Challenges

What GAO Found

Three long-standing major impediments prevented GAO from expressing an
opinion on the U.S. government’s 2012 accrual-based consolidated financial
statements: (1) serious financial management problems at the Department of
Defense (DOD), (2) the federal government’s inability to adequately account for
and reconcile intragovemmental activity and balances between federal entities,
and (3) the federal government's ineffective process for preparing the
consolidated financial statements. Also, GAO was prevented from expressing
opinions on the 2012 social insurance-related statements because of significant
uncertainties primarily related to the achievement of projected reductions in
Medicare cost growth reflected in the statements.

DOD continues to work to address its financial management challenges with the
goal of full financial statement auditability, but has much work to do if the
department Is to meet its audit readiness and financial management
improvement goals. In addition, the Department of the Treasury, in coordination
with the Office of Management and Budget (0MB). is taking actions to address
issues related to intragovemmental activity and preparation of the consolidated
financial statements, but additional efforts and sustained commitment are
required to fully resolve these issues.

The 2012 Financial Report of the United States Government included
comprehensive long-term fiscal projections, which provide a much-needed
perspective on the federal government's long-term fiscal position and outlook.
These, like GAO’s simulations, include the savings provided by the Budget
Control Act of 201 1 . yet still show an unsustainable long-term fiscal path.

As GAO reported in June 2013, the executive branch has taken a number of
steps to implement key provisions of the GPRA Modernization Act of 2010
(GPRAMA or the act), such as the development of interim cross-agency and
agency-specific priority goals and use of data-driven quarterly performance
reviews. However, the executive branch needs to do more to fully implement and
leverage the act’s provisions to address governance challenges in the following
five areas: (1) 0MB and agencies have made some progress addressing
crosscutting issues, but are missing additional opportunities such as assessing
the performance of tax expenditures; (2) while Key performance management
practices hold promise, ensuring performance infoimation is useful and used by
managers to improve results remains a weakness. For example. GAO found little
improvement in federal managers’ reported use of performance information or
practices that could help promote its use, based on its periodic government-wide
surveys of federal managers since 1 997. Moreover, only 37 percent of managers
reported that a program evaluation had been completed in the past 5 years of
any program or operation they were involved in; (3) agencies have taken steps to
align daily operations with agency results, but continue to face difficulties
measuring performance in areas such as grants and contracts;

(4) communication of performance information could better meet users’ needs;
and (5) agency performance information is not always useful for congressional
decision making. GAO found little evidence that meaningful consultations
occurred with Congress related to agency strategic pians and agency priority
goats.

United States Government Accountability Office

Chairman Issa, Ranking Member Cummings, and Members of the
Committee:

I appreciate the opportunity to be here today to discuss our reports on the
U.S. government’s consolidated financial statements for fiscal years 2012
and 201 1 and on the federal government's progress in implementing the
GPRA Modernization Act of 2010 (GPRAMA or the act).^ The federal
government is one of the world's largest and most complex entitles, with
about $3.5 trillion in outlays in fiscal year 2012, funding an extensive
array of programs and operations. Moreover, it faces a number of
significant fiscal, financial management, and performance management
challenges in responding to the diverse and increasingly complex issues
it seeks to address.

To operate as effectively and efficiently as possible and to make difficult
decisions to address the federal government’s management and fiscal
challenges. Congress, the administration, and federal managers must
have ready access to reliable and complete financial and performance
information — both for individual federal entities and programs and for
government as a whole. The government has made important progress
since the enactment of key federal financial management reforms in the
1990s and continues to address significant financial management and
long-term fiscal challenges. The act, which updated the Government
Performance and Results Act of 1993 (GPRA),“ was intended to help
increase the use of performance information in government and to take a
more crosscutting and integrated perspective on performance
management. However, our reports on the U.S, government's
consolidated financial statements and on the implementation of the act
illustrate that further improvements to federal financial and performance
management are urgently needed, I would like to commend you, Mr.

’The Secretary of the Treasury, in coordination with the Director of the Office of
Management and Budget, is required to annually submit audited financial statements for
the U.S. government to the President and Congress. GAO is required to audit these
financial statements. The Government Management Reform Act of 1 994 has required
such reporting, covering the executive branch of government, beginning with the financial
statements prepared for fiscal year 1997, 31 U.S.C. 331(e). The federal government has
elected to include certain financial information on the legislative and judicial branches in
the consolidated financial statements as well.

^Pub. L. No. 111-362, 124Stal 3866 (Jan. 4,2011).

¥ub, L. No. 103-62. 107 Slat. 285 (Aug. 3, 1993),

Page 1

GAO-13-752T

Chairman, and this committee, for holding this oversight hearing on these
important subjects. Congressional oversight is critical to assuring
continued progress.

This testimony is based on several reports issued in 2013. In January
2013, v/e Issued our report on the results of our audit of the U.S.
government’s fiscal years 2012 and 201 1 consolidated financial
statements, which along with the financial statements, are contained in
the fiscal year 2012 Financial Report of the United States Government
{Financial Report).^ We performed sufficient audit work to provide our
report on the consolidated financial statements, internal control, and
compliance with selected provisions of laws and regulations. We
conducted our audit in accordance with U.S. generally accepted
government auditing standards. Our audit report would not be possible
without the commitment and professionalism of inspectors general
throughout the federal government who are responsible for annually
auditing the financial statements of individual federal entities.

The act includes provisbns requiring us to review its implementation at
several critical junctures.® In June 2013, we issued a report highlighting
the key findings from several reports issued over the past 2 years
covering the executive branch’s Implementation of key provisions of the
act and how the executive branch can more fully implement and leverage
the act to address pressing governance challenges.® The report also
included the results of our most recent survey of federal managers on the
implementation of key performance management practices across

GAO. Financial Audit U. S. Government's Fiscal Years 2012 and 201 1 Consolidated
Financial Statements. GAO-13-271R (Washington, D C.: Jan. 17, 2013), The Financial
Report is available through the Department of the Treasury at
http://www.fms.treas. 90 v/fr/index.html- Also, see GAO, Understanding the Primary
Components of the Annual Financial Report of the United States Government,
GAO-09-946SP (Washington, D C.: September 2009).

®For more information on our reports reviewing initial implementation of the act, see GAO,
Managing for Results: Executive Branch Should More Fully Implement the GPRA
Modernization Act to Address Pressing Governance Challenges, GAO-13-518
(Washington. O.C.: June 26. 2013). For more details on the scope and methodology for
this wort<, see app. I of GAO-13-518.

®See GAO-13-518. For the full results of our 2013 survey, see GAO. Managing for
Results: 2013 Federal Managers Survey on Organization Performance and Management
Issues, an E-Supplement to GAO-13-518. GAO-13-519SP (Washington, D C.: June
2013).

Page 2

GAO-13-752T

government— the filth such survey we have undertaken since 1997. In
addition to the survey, we reviewed the act, related Office of Management
and Budget (OMB) guidance, and our past and recent work related to
federal performance management and the act, as well as interviewed
OMB staff. Based, in part, on some of the results of our federal managers’
survey, we also issued a report in June 201 3 on strategies to facilitate
agencies’ use of program evaluations.^ in addition to the survey, we
interviewed OMB staff and evaluators at five agencies within the
Departments of Agriculture, Health and Human Services, and Labor
selected for their evaluation experience. We conducted our performance
audits in accordance with generally accepted government auditing
standards.

Results of Our Audit
of the U.S.
Government’s
Consolidated
Financial Statements
for Fiscal Years 2012
and 2011

The federal government was unable to demonstrate the reliability of
significant portions of its accrual-based consolidated financial statements
for fiscal years 2012 and 201 1 , principally resulting from limitations
related to certain material weaknesses in internal control over financial
reporting." For example, about 34 percent of the federal government’s
reported total assets as of September 30, 2012, and approximately 21
percent of the federal government’s reported net cost for fiscal year 2012,
relate to the Department of Defense (DOD), which received a disclaimer
of opinion on its consolidated financial statements. As a result, we were
unable to provide an opinion on the accrual-based consolidated financial
statements of the U.S. government. Further, significant uncertainties,
primarily related to the achievement of projected reductions in Medicare
cost growth reflected in the 2012, 201 1 , and 2010 Statements of Social
Insurance," prevented us from expressing opinions on those

^GAO, Program Evaluation: Strategies to Facilitate Agencies’ Use of Evaluation in
Program Management and Policy Making, GAO-1 3-570 {Washington, D C,; June 26,
2013). For more details on the scope and methodology for this work, see app. I of
GAO-1 3-570.

®A material weakness is a deficiency, or combination of deficiencies, in internal control
such that there is a reasonable possibility that a material misstatement of the entity’s
finandal statements will not be prevented, or detected and corrected, on a timely basis. A
deficiency in internal control exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned
hinctions, to prevent, or detect and correct, misstatements on a timely basis.

®These uncertainties are discussed in Note 26 to the consolidated financial statements.

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GAO-1 3-752T

statements,™ as well as on the 2012 and 201 1 Statements of Changes in
Social Insurance Amounts. Given the importance of social insurance
programs, such as Medicare and Social Security to the federal
government's long-term fiscal outlook, the Statement of Social Insurance
is critical to understanding the federal government’s financial condition
and fiscal sustainability.

The federal government did not maintain adequate systems or have
sufficient, reliable evidence to support certain material information
reported in the U.S. government's accrual-based consolidated financial
statements. The underlying long-standing material weaknesses in internal
control contributed to our disclaimers of opinion on the U.S. government’s
accrual-based consolidated financial statements for the fiscal years
ended September 30, 2012 and 2011.” Specifically, these weaknesses
concerned the federal government's inability to

• satisfactorily determine that property, plant, and equipment and
inventories and related property, primarily held by DOD, were properly
reported in the accrual-based consolidated financial statements;

• reasonably estimate or adequately support the amounts reported for
certain liabilities, such as environmental and disposal liabilities, or
determine whether commitments and contingencies were complete
and properly reported;

• support significant portions of the reported total net cost of operations,
most notably related to DOD, and adequately reconcile disbursement
activity at certain federal entities;

. adequately account for and reconcile intragovernmental activity and
balances between federal entities;

• ensure that the federal government's accrual-based consolidated
financial statements were (1) consistent with the underlying audited

expressed unqualified oprntons on the 2009 and 2008 Statements of Social
Insurance.

”a more detailed description of the material weaknesses that contributed to our
disclaimer of opinion, including the primary effects of these material weaknesses on the
accrual-based consolidated financial statements and on the management of federal
government operations, can be found on pages 237 through 242 of the Financial Report.

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GAO-13-762T

entities’ financial statements, (2) properly balanced, and (3) in
conformity with U.S. generally accepted accounting principles (U.S.
GAAP); and

• identify and either resolve or explain material differences between
(1) components of the budget deficit that are used to prepare certain
information in the consolidated financial statements and (2) related
amounts reported in federal entities' financial statements and
underlying financial information and records.

These material weaknesses continued to (1) hamper the federal
government's ability to reliably report a significant portion of its assets,
liabilities, costs, and other related information; (2) affect the federal
government's ability to reliably measure the full cost as well as the
financial and nonfinancial performance of certain programs and activities;
(3) impair the federal government’s ability to adequately safeguard
significant assets and properly record various transactions; and (4) hinder
the federal government from having reliable financial information to
operate in an efficient and effective manner.

We also reported certain other material weaknesses,’* including the
federal government's inability to (1) determine the full extent to which
improper payments occur and reasonably assure that appropriate actions
are taken to reduce improper payments,'* and (2) identify and resolve
information security control deficiencies and manage information security
risks on an ongoing basis.

Since the enactment of key financial management reforms in the 1990s,
important progress has been made improving financial management
activities and practices. For fiscal year 2012, 21 of 24 Chief Financial
Officers (CFO) Act agencies were able to attain unqualified audit opinions
on their accrual-based financial statements, up from 6 CFO Act agencies
for fiscal year 1996." Also, for the first time, the Department of Homeland

’*A more detaifed discussion of these weaknesses, including the primary effects of the
material weaknesses on the accrual-based consolidated financial statements and on the
management of federal government operations, can be found on pages 243 through 245
of the Financial Report-

’^Federal entities reported estimates of improper payment amounts that totaled
$107.7 billion for fiscal year 2012, which represented approximately 4.4 percent of about
$2.5 trillion of reported outlays for the associated programs.

''^See app. I for the fiscal year 2012 audit results for the 24 CFO Act Agencies.

GAO-13-752T

Security (DHS) was able to obtain a qualified audit opinion on its
department-wide financial statements — a significant achievement for
DHS. Further, the preparation and audit of financial statements have
identified numerous deficiencies, leading to actions to strengthen controls
and systems. However, many of the CFO Act agencies continue to
struggle with financial systems that do not meet the needs of
management for reliable, useful, and timely financial information.

The Federai Financial Management Improvement Act of 1996 (FFMIA)
was designed to lead to system improvements that would result in CFO
Act agency managers routinely having access to reliable, useful, and
timely financial-related information with which to measure performance
and increase accountability throughout the year.'® FFMIA requires
auditors, as part of the 24 CFO Act agencies’ financial statement audits,
to report whether those agencies' financial management systems
substantially comply with (1) federal financial management systems
requirements, (2) applicable federal accounting standards, and (3) the
federal government's U. S. Standard General Ledger at the transaction
level.

For both fiscal years 2012 and 2011, auditors for 1 1 of the 24 CFO Act
agencies reported that the agencies' financial management systems did
not substantially comply with one or more of the three FFMIA
requirements. Often, federal entities expend major time, effort, and
resources to develop financial information that their systems should be
able to provide on a daily or recurring basis. Therefore, it is important for
the individual federal entities to remain committed to maintaining the
progress that has been achieved in obtaining positive audit results and to
build upon that progress to make needed improvements in federal
financial management systems.

Addressing Impediments
to an Opinion on the
Accrual-Based
Consolidated Rnancial
Statements

Three long-standing major impediments continued to prevent us from
expressing an opinion on the U.S. governments accrual-based
consolidated financial statements: (1) serious financial management
problems at DOD, (2) the federal governments inability to adequately
account for and reconcile intragovernmental activity and balances

'®FFMIA, which is reprinted in 31 U.S.C. 3512 note.

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GAO-13-752T

between federal entities, and (3) the federal government's ineffective
process for preparing the consolidated financial statements.

Improving Rnancial DOD continues to work toward the long-term goal of improving financial

Management at DOD management and full financial statement auditability. The National

Defense Authorization Act (NDAA) for Fiscal Year 2010 requires that
DOD's Financial Improvement and Audit Readiness (FIAR) Plan set as its
goal that the department’s financial statements be validated as ready for
audit by September 30, 2017.® In addition, the NDAA for Fiscal Year
201 3 requires that the FIAR Plan also describe specific actions to be
taken and the cost associated with ensuring that DOD's Statement of
Budgetary Resources (SBR) is validated as ready for audit by
September 30, 2014.” DOD’s FIAR Plan and semiannual status reports
define the activities, corrective actions, and interim milestones the
department has deemed necessary to achieve auditability and the
availability of reliable, useful, and timely information for management
decision making. Under its FIAR Plan, DOD is focusing on improving
controls, systems, and processes relied on to provide financial
information in two areas that are critical to managing its operations:

(1) budgetary information and (2) accountability over its mission-critical
assets.

Based on difficulties encountered in auditing the SBR of the Marine
Corps, in August 2012, DOD's FIAR Governance Board approved a
significant change to the FIAR methodology that will limit the scope of
first-year SBR audits for all DOD components. As outlined in the March
2013 revised FIAR Guidance, the scope of the SBR audits beginning in
fiscal year 201 5 will be on budget activity only in the current-year
appropriations as an interim step toward achieving an audit of the SBR. in
subsequent years, the components will commence audits of schedules of
both current-year and prior-year audited appropriations and all related
activity against those appropriated funds.

L. No. 111-84, § 1003(aK2)(A)(ii), 123 Stat. 2190, 2440 (Oct, 26, 2009) (reprinted
in 10 U S.C. § 2222 note). Prior to enactment of this law, DOD had been using the
September 30, 2017 date as its internal goal since 2008.

”NDAA (or Fiscal Year 2013, Pub, L. No. 112-239, § 1005(a), 126 Stat. 1632, 1904
{dan. 2. 2013) {reprinted in 10 U.S.C, § 2222 note).

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GAO-13.752T

While DOD has made efforts to improve its financial management, we
found significant internal control, financial management, and systems
deficiencies in DOD's processes and procedures for maintaining
accountability for billions of dollars in funds and other resources. For
example, we found that

. the Army and the Defense Finance and Accounting Service (DFAS)
could not readily identify the full population of payroll accounts
associated with the Army’s $46 billion active duty military payroll
because of deficiencies in existing procedures and nonintegrated
personnel and payroll systems,’®

• DFAS could not detect and correct all errors in active duty military
payroll disbursements because of deficiencies in its processes,’®

• DOD's improper payment estimates reported in its fiscal year 201 1
Agency Financial Report were neither reliable nor statistically valid
because of long-standing and pervasive financial management
weaknesses and significant deficiencies in the department’s
procedures related to estimating improper payments,®” and

• DOD continues to encounter difficulties in implementing its planned
Enterprise Resource Planning (ERP) systems on schedule and within
budget,®’ due to significant operational problems and significant
delays in deploying key ERP systems.®®

’®GAO, DOD Financial Management: The Army Feces Significant Challenges in Achieving
Audit Readiness for Its Military Pay. GAO- 12-406 (Washington, D.C.: Mar. 22, 2012),

’®GAO. DOD Financial Management: Actions Needed to Address Deficiencies in Controls
over Army Active Duty Military Payroll. GAO'13-28 (Washington, D.C.: Dec. 12, 2012).

^®GAO. DOD Financial Management: Significant Improvements Needed in Efforts to
Address Improper Payment Requirements, GAO-13-227 (Washington, D.C,: May 13,
2013).

^^The effective implementation of ERP systems will be critical to the success of ail of
DOD’s planned long-term financial improvement efforts. ERP systems are integrated,
multifunction systems that perform business-related tasks such as general ledger
accounting and supply chain management. DOD considers their implementation essential
to transforming its business operations and achieving Its goals of audit readiness by fiscal
year 2017.

^^GAO, DOD Financial Management: Implementation Weaknesses in Army and Air Force
Business Systems Could Jeopardize DOD's Auditability Goals, GAO-1 2-1 34 (Washington.
D.C.;Feb. 28, 2012).

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GAO-13-752T

We have made numerous recommendations to DOD to address these
financial management issues. While we are encouraged by DOD’s
sustained commitment to improving financial management and achieving
audit readiness, several DOD business practices, including financial
management, remain on GAO’s list of high-risk programs.^^ DOD faces
considerable challenges and has much work to do if it is to meet its audit
readiness goals. DOD's continued oversight and monitoring will play a
key role in ensuring that the FIAR Plan is implemented as intended, and
lessons learned are identified and effectively disseminated and
addressed." While DOD’s May 2013 FIAR Plan status report reiterated
the department's commitment to achieving its audit readiness goals, it
noted that absent a stable budget environment, DOD's efforts were
subject to increased risk. Continued congressional oversight of DOD’s
financial management improvement efforts will be critical to helping
ensure DOD achieves its audit readiness goals. To assist Congress in its
oversight efforts, we will continue to monitor DOD's progress and provide
feedback on the status of its financial management improvement efforts.

Reconciling Intragovemmental Since the first audit of the U.S. government's fiscal year 1997

Activity and Balances consolidated financial statements, we have reported a material weakness

related to the federal government's Inability to adequately account for and
reconcile intragovemmental activity and balances between federal
entities, as well as between federal entities and the General Fund,^®
When preparing the consolidated financial statements, intragovemmental
activity and balances between federal entities and between federal
entities and the General Fund should be in agreement and must be
subtracted out, or eliminated, from the financial statements. If the two
federal entities engaged in an intragovemmental transaction do not both
record the same intragovemmental transaction in the same year and for
the same amount, the intragovemmental transactions will not be in
agreement, resulting in errors in the consolidated financial statements.

’®GAO, High-Risk Senes: An Update. GAO-13-283 (Washington, D.O.: Feb. M, 2013),

"GAO, DOD Financial Management: Challenges in Attaining Audit Readiness and
Improving Business Processes and Systems, GAO-12-642T (Washington, D.C : Apr 18
2012).

^®The General Fund is a central reporting entity that tracks core activities fundamental to
funding the federal government (e.g., issued budget authority, operating cash, and debt
financing activities).

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GAO-13-75ZT

The Department of the Treasury (Treasury) has grouped
Intragovernmental activity and balances into the following five categories
and is working with federal entity personnel to identify and resolve
reported unreconciled differences.

• Fiduciary activities include investments in Treasury securities with
the Bureau of the Fiscal Service (Fiscal Service),^® borrowing from the
Fiscal Service and the Federal Financing Bank and related interest
receivable and payable, interest expense and revenue, and federal
loans receivable and payable.

• Benefit activities include contributions by federal entities into
employee benefit programs (retirement, life insurance, workers’
compensation, and health benefits) administered by the Office of
Personnel Management and the Department of Labor.

• Buy/Seil activities between federal entities include buy and sell costs
and revenues, accounts receivable and payable, and advances to and
from others.

• Transfers of funds include transfers payable and receivable, and
transfers in and out without reimbursement.

• General Fund transactions and balances include fund balance with
Treasury, appropriations received and warrants, and custodial and
non-entity collections.

The federal government has made progress in reconciling
intragovernmental differences and the degree of progress varies by
category. However, the federal government continues to be unable to
adequately account for and reconcile intragovernmental activity and
balances. For fiscal year 2012. amounts reported by federal entity trading
partners for certain intragovernmental accounts were not in agreement by
significant amounts. OMB and Treasury require the CFOs of 35
significant federal entities to reconcile, on a quarterly basis, selected

^®According to Treasury officials, on October 7, 2012, the Secretary of the Treasury
(1) established the Bureau of the Fiscal Service as a bureau within the Department of the
Treasury. (2) consolidaled and redesignated the Bureau of the Public Debt and the
Financial Management Service as the Bureau of the Fiscal Service, and (3) transferred
the duties of the Bureau of the Public Debt and Financial Management Service
commissioriers to the Commissioner of the Bureau of the Fiscal Service.

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GA0.13.752T

intragovernmental activity and balances with their trading partners. As in
prior years, a substantial number of the entities did not adequately
perform the required year-end reconciliations for fiscal year 2012. Further,
there continue to be hundreds of billions of dollars of unreconciled
differences between the General Fund of the U.S. government and
federal entity trading partners related to appropriations and other
intragovernmental transactions. Currently, federal entities report their
activity with the General Fund; however, the General Fund activity is not
centrally reported, and therefore, a process does not exist for entities to
confirm and reconcile all of their activity and balances with the General
Fund. As a result of these circumstances, the federal government’s ability
to determine the impact of the unreconciled differences between trading
partners on the amounts reported in the accrual-based consolidated
financial statements is significantly impaired.

Over the years, we have made several recommendations to Treasury to
address these issues. Treasury has taken or plans to take actions to
address these recommendations. During fiscal year 2012, Treasury
expanded its ongoing efforts to help resolve and eliminate material
differences in intragovernmental activity and balances. These efforts
included developing and implementing a formalized resolution plan and
related corrective actions intended to address long-standing
intragovernmental challenges. As part of Its plan. Treasury monitors
entities’ reconciliation efforts and compliance with Treasury Financial
Manual guidance. For example, in fiscal year 2012, Treasury began a
pilot program with 14 entities that included providing them with quarterly
metrics and scorecards highlighting differences requiring attention. In
fiscal year 2013, Treasury expanded the distribution of the quarterly
metrics and scorecards to include all 35 significant entities. Further,
Treasury is in the process of establishing separate reporting for the
General Fund, which includes intragovernmental transactions. Resolving
the intragovernmental transactions problem remains a difficult challenge
and will require a strong and sustained commitment by federal entities to
timely resolve differences with their trading partners, as well as continued
strong leadership by Treasury and 0MB.

Preparing the Consolidated Treasury, in coordination with 0MB, implemented corrective actions

Financial Statements during fiscal year 2012 to address certain internal control deficiencies

detailed in our previously issued reports regarding the process for
preparing the consolidated financial statements, including obtaining and
utilizing certain interim financial information from federal entities in
preparing initial consolidated financial statement drafts and
supplementing staff during the financial report preparation process.

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GA0.13-7S2T

Treasury also began to develop a methodology to reconcile the budget
deficit to the consolidated financial statements. Nevertheless, the federal
government continued to have inadequate systems, controls, and
procedures to ensure that the consolidated financial statements are
consistent with the underlying audited entity financial statements, properly
balanced, and In conformity with U.S. GAAP.^^ For example:

• Treasury's process did not ensure that the information in three of the
accrual-based consolidated financial statements (Statement of
Operations and Changes in Net Position, Reconciliations of Net
Operating Cost and Unified Budget Deficit, and Statement of Changes
in Cash Balance from Unified Budget and Other Activities) was fully
consistent with the underiying Information in the 35 significant federal
entitles’ audited financial statements and other financial data.

• Treasury is unable to properly balance the accrual-based
consolidated financial statements. To make the fiscal years 2012 and
2011 consolidated financial statements balance, Treasury recorded
net increases of $20.2 billion and $15.6 billion, respectively, to net
operating cost on the Statement of Operations and Changes in Net
Position, which were identified as “Unmatched transactions and
balances."^® Treasury recorded an additional net $1.8 billion and
$6.0 billion of unmatched transactions in the Statement of Net Cost for
fiscal years 2012 and 201 1 , respectively. The material weakness in
federal entities' ability to account for and reconcile intragovernmental
activity and balances, discussed above, significantly contributes to the
unmatched transactions and balances and consequently Impairs
Treasury’s ability to fully eliminate such intragovernmental activity and
balances.

^^Most of the issues we identified in fiscal year 2012 existed in fisca! year 2011, and many
have existed fora number of years. Most recently, in June 2013, we reported the issues
we identified to Treasury and 0MB and provided recommendations for corrective action.
See GAO, Management Report: Improvements Needed in Contmis over the Preparation
of the U.S. Consolidated Financial Statements, GAO-13-54Q (Washington, D.C.: June 28,
2013). A detailed discussion of control deficiencies regarding the process for pnsparing the
consolidated financial statements can be found on pages 239 through 241 of the Financial
Report.

^®Although Treasury was unable to determine how much of the unmatched transactions
and balances, if any, relates to net operating cost, it reported this amount as a component
of net operating cost in the consolidated financial statements.

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GAO-13.752T

• Treasury’s reporting of certain financial information required by U.S.
GAAP continues to be impaired and will remain so until federal
entitles, such as DOD, can provide Treasury with complete and
reliable information required to be reported in the consolidated
financial statements.

Resolving these internal control deficiencies remains a difficult challenge
and will require a strong and sustained commitment from Treasury and
0MB as they continue to execute and implement their corrective action
plans.

Significant Uncertainties
Result in Disclaimers of
Opinion on the 2012, 2011,
and 2010 Statements of
Social Insurance, as Well
as on the 2012 and 2011
Statements of Changes in
Social Insurance Amounts

Significant uncertainties, primarily related to the achievement of projected
reductions in Medicare cost growth reflected in the 2012, 2011, and 2010
Statements of Social Insurance, prevented us from expressing opinions
on the 2012, 201 1 , and 2010 Statements of Social Insurance, as well as
on the 2012 and 201 1 Statements of Changes in Social Insurance
Amounts.^ The Statement of Social Insurance presents the actuarial
present value of the federal government’s estimated future revenue to be
received from or on behalf of participants and estimated future
expenditures to be paid to or on behalf of participants, based on benefit
formulas in current law and using a projection period sufficient to illustrate
the long-term sustainability of the social insurance programs.®®

These significant uncertainties include the following:

• Medicare projections in the 2012, 2011, and 2010 Statements of
Social Insurance were based on benefit formulas In current law and
included a significant decrease in projected Medicare costs from the
2009 Statement of Social Insurance related to (1 ) reductions in
Medicare payment rates for physician services (totaling almost 31
percent in January 2013, as estimated in the 2012 Medicare Trustees

About $27,2 trillion, or 70,5 percent, of the federal government’s reported total present
value of future expenditures in excess of future revenue presented in the 2012 Statement
of Social Insurance relates to Medicare programs reported in the Departoent of Health
and Human Services' 2012 Statement of Social Insurance, which received a disclaimer of
opinion.

®®The projection period used for the Social Security, Medicare, and Railroad Retirement
social insurance programs is 75 years. For the Black Lung program, the projections are
through September 30, 2040.

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GAO-13.752T

Reportf and (2) productivity improvements for most other categories
of Medicare providers, based on full implementation of the provisions
of the Patient Protection and Affordable Care Act, as amended
(PPACA),^^ However, there are significant uncertainties concerning
the achievennenl of these projected decreases in Medicare costs.

• As discussed in note 26 in the Financial Report, actual future costs for
Medicare are likely to exceed those shown by the current-law
projections presented in the 2012, 201 1 , and 2010 Statements of
Social Insurance due, for example, to the likelihood of modifications to
the scheduled reductions in Medicare payment rates for physician
services. “ The extent to which actual future costs exceed the
projected current-law amounts due to changes to the scheduled
reductions in Medicare payment rates for physician services and
productivity adjustments depends on both the specific changes that
might be legislated and whether such legislation would include further
provisions to help offset such costs.

• The Financial Report includes an illustrative alternative projection that
is intended to provide additional context regarding the long-term
sustainability of the Medicare program and to illustrate the
uncertainties in the Statement of Social Insurance projections. The
present value of future estimated expenditures in excess of future
estimated revenue for Medicare, included in the illustrative alternative
projection, exceeds the $27.2 trillion estimate in the 2012 Statement
of Social Insurance by $10,1 trillion.

Projections of Medicare costs are sensitive to assumptions about future
decisions by policymakers and about the behavioral responses of
consumers, employers, and health care providers as policy, incentives,

^^Subsequent to our audit, the 2013 Medicare Trustees Report vras issued on May 31,
2013,

“PPACA, Pub, L. No, 111-148, 124Stat. 119 (Mar. 23.2010), as amended by the Health
Care and Education Reconciliation Act of 2010, Pub. L. No, 111-152, 124 Stat, 1029
(Mar. 30, 2010),

^^Statutes have been enacted with provisions that prevented scheduied reductions in
Medicare payment rates for physician services from taking effect from 2003 through 2013,
including the most recent provision enacted in the American Taxpayer Relief Act of 2012
(ATRA), Pub, L, No. 112-240, § 601, 126 Stat. 2313, 2345 (Jan. 2, 2013). Some of these
statutes also included provisions that reduced the federal government's spending on other
categories of health care, which had the effect of helping to offset the increased costs
related to the physician payment updates.

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GAO-13-7S2T

and the health care sector change over time. Such secondary Impacts are
not fully reflected In the Statement of Social Insurance projections but
could be expected to Influence the excess cost growth rate used in the
projections.^ Key drivers of uncertainty about the excess cost growth rate
Include the future development and deployment of medical technology,
the evolution of personal Income, and the cost and availability of
insurance, as well as federal policy changes, such as the implementation
of PPACA. Both the Statement of Social Insurance projections and the
illustrative alternative estimate summarized in Note 26 in the Financial
Report indicate that the Social Security and Medicare programs are not
sustainable under current financing arrangements.

T nna-Tprm Fi« 5 ral Financial Report includes comprehensive fiscal projections for

® the U.S. government that, consistent with GAO simulations, show that

Challenges without changes in current policy, the federal government continues to

face an unsustainable long-term fiscal path.^® Such reporting provides a
much needed perspective on the federal government’s long-term fiscal
position and outlook. The projections included in the Financial Report and
our simulations both continue to highlight the need to focus attention not
only on the federal government’s near-term budget outlook but also on its
longer-term fiscal path. In the near term, deficits are expected to continue
to decline from the recent historic highs as the economy recovers and
actions taken by Congress and the President begin to take effect, Debt
held by the public as a share of gross domestic product (GDP), however,
remains well above historical averages. Debt held by the public at these
high levels could limit the federal government’s flexibility to address
emerging issues and unforeseen challenges such as another economic
downturn or large-scale natural disaster.

^The excess cost growth rate is the increase in health care spending per person relative
to the growth of gross domestic product per person after removing the effects of
demographic changes on health care spending.

^®GAO, The Federal Government's Long-Term Fiscal Outlook. Spring 2013 Update.
GAO-13-481 SP (Washington, D.C.: Apr. 11, 2013), and The Federal Government's Long-
Term Fiscal Outlook: Fall 2012 Update. GAO-13-148SP (Washington, D C.; Dec, 3, 2012),
The key difference between these two is that the Spring 2013 update reflects the
enactment of ATRA, which among other changes, modified the 2013 and 2014
discretionary spending limits, permanently extended many of the tax provisions that were
previously set to expire under current law and limited the reach of the Alternative Minimum
Tax. The overall effects of ATRA on the longer-term outlook under GAO’s alternative
simulation are relatively small.

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GAO-13-752T

Both the projections in the Financial Report and our long-term simulations
reflect enactment of the Budget Control Act of 2011 (BCA).^® BCA set
limits on discretionary spending for fiscal years 2012 through 2021. Under
the enacted discretionary spending limits, discretionary spending as a
share of the economy In 2021 would be lower than any level seen in the
last 50 years. Even with the reductions from BCA, the government
continues to face a significant structural imbalance between revenues
and spending, driven on the spending side largely by the aging of the
population and rising health care costs. Changing this path will not be
easy, and it will likely require difficult decisions affecting both federal
spending and revenue. Significant action to change the long-term path
must be taken soon to minimize the risk that eventual policy changes will
be disruptive to individuals and the economy, while also taking into
account concerns about near-term economic growth.

The Executive Branch
Needs to More Fully
Implement the GPRA
Modernization Act to
Address Pressing
Governance
Challenges

As we reported in June 2013, the executive branch has taken a number
of steps to implement key provisions of the GPRA Modernization Act of
2010 (the act). OMB has developed interim cross-agency priority goals,
and agencies developed agency-specific priority goals. Agency officials
reported that their agencies have assigned performance management
leadership roles and responsibilities to officials, such as performance
Improvement officers, who generally participate in performance
management activities, including data-driven quarterly performance
reviews. Further. OMB developed Performance.gov, a government-wide
website, which provides quarterly updates on the cross-agency priority
goals and agency priority goals, The Performance improvement Council,
which consists of agency performance Improvement officers, has also
taken steps to facilitate the exchange of useful practices and tips and
tools to strengthen agency performance management. Nevertheless, our
work has shown that the executive branch needs to do more to fully
implement and leverage the act's provisions to address governance
challenges.

^he Budget Control Act of 2011, Pub. L. No. 112-25, §302, 125 Slat 240, 256-59
(Aug. 2, 2011), classified, asamended, in2 U.S.C. § 901a.

^^GAO-13-518.

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QA0-13-752T

0MB and Agencies Have
Made Some Progress
Addressing Crosscutting
Issues but Are Missing
Additional Opportunities

Many of the meaningful results that the federal government seeks to
achieve, such as those related to protecting food and agriculture and
providing homeland security, require the coordinated efforts of more than
one federal agency, level of government, or sector. For almost two
decades we have reported on agencies’ missed opportunities for
improved collaboration through the effective implementation of GPRA.
Under the act, 0MB and agencies have identified many programs and
activities that contribute to goals, as required, but our recent work
continues to show that they are missing additional opportunities to
address crosscutting issues. While agencies have implemented some of
the act's provisions, their efforts have not included ail of the relevant
agency, program, and other contributors. For example, few have
Identified tax expenditures, which represent about $1 trillion in foregone
revenue in fiscal year 2012, due to a lack of 0MB guidance and
oversight. Therefore, the contributions made by tax expenditures toward
broader federal outcomes are unknown. In June 2013, we recommended
that OMB take several actions to ensure that the contributions of tax
expenditures to crosscutting and agency goals are identified and
assessed.® OMB staff agreed with these recommendations.

in addition, agencies are not consistently including all relevant
stakeholders as they Implement key provisions of the act in the following
areas:

t Cross-agency priority goals: in May 2012, we identified additional
agencies that should be named as contributors for 10 of the 14 interim
cross-agency priority goals.®

• Agency priority goals; In April 2013, we found that agencies

Identified contributors within the agency for each agency priority goal,
but did not identify external contributors for 29 of the 102 agency
priority goals we reviewed. In some cases, the goals seem to be
internally focused, but in other cases, our work has shown that there
are external contributors that were not listed.®

®GAO-13-518

®GAO. Managing for Results: GAO'S Work Related to the Interim Crosscutting Priority
Goals under the GPRA Modernization Act, GAO-12-620R (Washington, D.C,: May 31,
2012 ).

®GAO, Managing for Results: Agencies Should More Fully Develop Priority Goals under
the GPRA Modernization Act, GAO-13-174 (Washington, D.C,: Apr 19, 2013).

Page 17

GA0-13-752T

• Quarterly performance reviews: In February 2013, we reported that
while we found that quarterly performance reviews have shown
promise in improving internal agency coordination and collaboration,
few agency performance improvement officers reported that they were
using the reviews to coordinate or collaborate with other agencies that
have similar goals.'*^

We made recommendations to the Director of 0MB to address each of
these areas. OMB staff agreed with these recommendations.

Ensuring Performance
Information Is Useful and
Used by Managers to
Improve Results Remains a
Weakness, but Key
Performance Management
Practices Hold Promise

As we reported in June 2013, we found little Improvement in federal
managers’ reported use of performance information or practices that
could help promote its use, based on our periodic government-wide
surveys of federal managers since 1997, in particular, as figure 1
illustrates, the results from our 201 3 managers survey show almost no
statistically significant changes in managers' perceptions of their leaders’
and supervisors’ attention and commitment to use of performance
information since our last survey in 2007 — ^with the exception of a decline
in the percentage of managers who agreed to a great or very great extent
that their agencies’ top leadership demonstrates a strong commitment to
achieving results.

'’^GAO. Managing for Results: Data-Driven Performance Reviews Show Promise But
Agencies Should Explore How to Involve Other Relevant Agencies, GAO-1 3-228
(Washington. D C.: Feb 27. 2013).

Page 18

GA0-13-752T

Figure 1 : Less Than Two-Thirds of Federal Managers Agreed In 2013 to a "Great” or
“Very Great” Extent with Statements about Leadership and Supervisor Commitment
and Attention to Performance information

My ag«ncy% top leadership
demonstrates a strong
commibnent to achieving
results^

My agency's top leadership
demonstrates a strong
commitment to using
performance information to
guide decision making'^

The individual I report to pays
attention to performance
information in decision makingti

The Individual < report to
periodically reviews n^th me the
resulls or outcomes of my
programfs)^

0 to 20 30 40 50 80 70

Percentage

80 100

Og 1997

Source GAO.

Notes: Percentage estimates for 2013 and 2007 have 95 percent confidence inten/als within +/-4
percentage points of the estimate, and j»rcentage estimates for 1 997 have confidence inte vals
within percentage points of the estimate.

Some survey items were abbreviated. For the full text, see items lOg, lOh, 11a, and 12c in
GAO-13-519SP.

‘Statisticaity signiHcant decrease between 2007 and 2013.

‘’Survey item was introduced in 2007.

‘StaiisticaHy significant increase between 1997 and 2013.

Importantly, agencies’ quarterly performance reviews show promise as a
leadership strategy for improving the use of performance Information in
agencies. According to our 2012 survey of performance improvement
officers at 24 agencies, the majority (21 out of 24 agencies required to

Page 19

GAO-13-752T

conduct these reviews) reported that actionable opportunities for
performance improvement are identified through the reviews at least half
the time.® In addition, most officials we Interviewed at the Department of
Energy, the Department of the T reasury , and the Small Business
Administration attributed improvements in performance and decision
making to their performance reviews.

Building the capacity to use performance information is also critical to
helping ensure that information is used in a meaningful fashion, and
inadequate staff expertise, among other factors, can hinder agencies'
use. Only about a third (36 percent) of federal managers reported in our
2013 survey that they agreed to a great or very great extent that their
agencies have sufficient analytical tools for managers at their levels to
collect, analyze, and use performance information. The act lays out
specific requirements for the Office of Personnel Management (0PM) to
identify skills and competencies for performance management functions,
among other actions. 0PM has identified competencies and relevant
position classifications and taken steps to work with agencies to
incorporate the key competencies Into agency training. However, we
reported in April 201 3 that these efforts have been broad-based and not
Informed by specific assessments of agency training needs.® We
recommended that the Director of 0PM work with the Performance
Improvement Council to identify competency gaps for agency
performance management staff and use this information to identify and
share relevant agency training. 0PM agreed with these
recommendations.

Our 2013 government-wide survey found that most managers also lack
recent program evaluation studies— a particular form of performance
information — ^that can identify ways to improve program efficiency and
effectiveness." Only 37 percent of managers reported that an evaluation
had been completed in the past 5 years of any program or operation they

®GAO-13-366 and GAO-13-228.

"GAO-13-356,

"GAO. Program Evaluation: Strategies to Facilitate Agencies' Use of Evaluation in
Program Management and Policy Making, GAO-1 3-570 (Washington, D.C,; June 26,
2013), Program evaluations are systematic studies that use research methods to assess
the achievement of a programs objectives in context, to explore the reasons for observed
results and isotale program effects from other influences.

Page 20

GA0-13-752T

were involved in. Yet, 81 percent of the managers who had evaluations
reported that evaluations contributed to a moderate or greater extent to
implementing changes to improve program management or performance.

As you know, we have issued three reports outlining numerous areas of
potential fragmentation, overlap and duplication in federal programs.®
Comprehensive program evaiuations that examine the coverage and
effectiveness of a cluster of federal programs and policies aimed at
achieving similar outcomes could be key in coordinating and streamlining
programs so as to reduce duplication and overlap. In case study
interviews, agency evaluators emphasized three basic strategies to
facilitate evaluation influence on program management and policy
making: (1) demonstrate leadership support by promoting the use of
evidence and funding evaluation offices to promote and support the use
of evidence; (2) build a strong body of evidence by attending to rigor in
whatever methods are used; and (3) engage stakeholders throughout the
evaluation process— gaining their input to planning; providing assistance,
training, and incentives; and disseminating usable messages.

Agencies Have Taken
Steps to Align Daily
Operations with Agency
Results but Continue to
Face Difficulties
Measuring Performance

Agencies have established performance management systems to align
individual performance with agency results. However, agencies continue
to face long-standing issues with measuring performance, such as
obtaining complete, timely, and accurate performance information, across
various programs and activities. Given the Performance Improvement
Council’s responsibilities for addressing crosscutting performance issues
and sharing performance improvement practices, our June 2013 report
noted that it could do more to examine and address the difficulties
agencies face to measuring performance across various program types,

^^GAO, 2013 Annual Report: Actions Needed to Reduce Fragmentation. Overlap, and
Duplication and Achieve Other Financial Benefits, GAO-1 3-279SP (Washington, D.C.:
Apr. 9, 2013); 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and
Fragmentation, Achieve Savings, and Enhance Revenue, GAO-12-342SP (Washington
D.C.: Feb, 28. 2012); and Opportunities to Reduce Potential Duplication in Government
Programs. Save Tax Dollars, and Enhance Revenue. GAO-11 -318SP (Washington, D.C.
Mar. 1, 2011).

Page 21

GA0-13-762T

such as grants and contracts.* "' We recommended that OMB work with
the Performance Improvement Council to develop a detailed approach for
addressing these long-standing performance measurement issues. OMB
staff agreed with this recommendation.

Communication of
Performance Information
Could Better Meet Users’
Needs

Federal managers and potential users of Performance.gov reported
concerns about the accessibility, availability, understandability, and
relevance of performance infomiation to the public. Potential users
include Members and committees of Congress and the public. In our June
2013 report reviewing Performance.gov, we noted that the website has
the potential to increase the accessibility of performance information for
users both inside and outside the federal government.* However, further
outreach to key stakeholders could help improve how this information is
communicated. We recommended in June 201 3 that OMB work with the
Performance Improvement Council and the General Services
Administration, which are involved in the development of the website, to
(1) clarify the specific ways that intended audiences could use the
information on Performance.gov and (2) systematically collect information
on the needs of intended audiences and collect recommended
performance metrics that help identify improvements to the website. OMB
staff agreed with these recommendations.

Agency Performance
Information Is Not Always
Useful for Congressional
Decision Making

Our work has found that the performance information that agencies
provided to the Congress was not always useful for congressional
decision making because the information was not clear, directly relevant,
or sufficiently detailed. Consultations with Congress are intended, in part,
to ensure that performance information is useful for congressional
decision making. OMB and agencies are to consult with relevant
committees. Including this committee, about proposed goals at least once
every 2 years. Specifically. OMB is to consult about the cross-agency

‘'®GAO-13-518-

also recommended in April 201 3 that the Director of OMB work with the
Performance Improvement Council to gather regular feedback from its members on its
perfonnance and update its strategic plan, as appropriate. OMB staff agreed with these
recommendations; see GAO-13-356.

^®GAO, Managing for Results: Leading Practices Should Guide the Continued
Devetopment of Perforwance.gov, GAO-13-517 (Washington, D C.: June 6, 2013).

Page 22

GAO-13-752T

priority goals and describe on Performance.gov how congressional input
was incorporated into these goals. Similarly, agencies are to consult
about their strategic plans, including agency priority goals, and describe
in these plans or on Perfornnance.gov, respectively, how that input was
incorporated. However, in April 2013 we found little evidence that
meaningful consultations occurred related to agency strategic plans and
agency priority goals." We recommended that the Director of 0MB
ensure that agencies provide a description of how input from
congressional consultations was incorporated into each priority goal.

0MB staff concurred with our recommendation.

In February 2014, OMB and agencies will publish a new set of cross-
agency priority goals, agency priority goals, and updated agency strategic
plans. According to OMB guidance, agency consultations with Congress,
including this committee, on updated strategic plans and agency priority
goals should take place this summer. Similarly, OMB has stated plans to
consult with this committee and other committees with broad jurisdiction
on the next set of cross-agency priority goals prior to their publication. At
the request of Congress, we developed a guide in June 2012 to assist
Members of Congress and their staffs in ensuring that the consultations
required under the act are useful for assessing agency performance.™
The guide outlines general approaches for successful consultations and
key questions that Members of Congress and congressional staffs can
ask as part of the consultation process.

ClOSinS ConrniBntS closing, while progress has been made, much work remains given the

® federal government’s long-term fiscal, financial management, and

performance management challenges. Congress, the administration, and
federal managers need to have more reliable, useful, and timely financial
and performance information to effectively meet these challenges, to
make sound decisions, and to operate as efficiently and effectively as
possible. Agencies must continue to strive toward routinely producing
such information to help guide decision makers on a day-to-day basis.
Federal entities' improvement of financial management systems will be

"GAO-13-174.

™GAO, Managing for Results: A Guide for Using the GPRA Modernization Act to Help
Inform Congressional Decision Making, GAO-12-621SP (Washington, O.C,: June 15
2012 ).

Page 23

GAO-13-752T

essential to achieve this goal for their agency and the government as a
whole.

Meaningful improvement in financial and performance management will
not occur without sustained commitment by executive branch leaders and
managers and continued oversight by Congress. The single most
important element of successful financial and performance management
improvement efforts is the demonstrated commitment of top leaders. This
commitment is most prominently shown through the personal involvement
of leaders, especially with agency data-driven performance reviews.
Demonstrating leadership support for accountability and Improvement by
promoting capacity building and the use of evidence is also essential in
helping facilitate program evaluation use in agency program management
and policy making. Similarly, Congress can play a decisive role in
fostering results-oriented cultures in the federal government by using
information on agency goals and asking for and using financial and
performance information as it carries out its various responsibilities.

Chairman Issa, Ranking Member Cummings, and Members of the
Committee, this concludes my prepared statement. I would be pleased to
respond to any questions that you may have at this time.

P AO PnntartR further information regarding this testimony, please contact Robert F,

a, ( 202 ) 512-3406 or daceyr@gao,gov; Gary T.
Engel, Director, Financial Management and Assurance, at (202) 512-
3406 or engelg@gao.gov; or J. Christopher Mihm, Managing Director,
Strategic Issues, at (202) 512-6806 or mihmj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this statement.

Page 24

GAO-13-7S2T

Appendix I: Chief Financial Officers (CFO)
Act Agencies: Fiscal Year 2012 Audit Results
and Principal Auditors

CFO Act agencies

Opinion expressed
by agency auditor

Agency auditor-ieported
material weaknesses or
noncompliance*

Principal auditor

Agency for International Development

Office of Inspector Genera! (OIG)

Agriculture

Unqualified

0!G

Commerce

Unqualified

KPMG LLP

Defense

Disclaimer

OIG

Education

Unqualified

Ernst & Young LLP

Energy

Unqualified

KPMG LLP

Environmental Protection Agency

Unqualified

OIG

General Services Administration

Unqualified

KPMG LLP

Health and Human Services

Ernst & Young LLP

Homeland Security

KPMG LLP

Housing and Urban Development

Unqualified

OIG

Interior

Unqualified

KPMG LLP

Justice

Unqualified

KPMG LLP

Labor

Unqualified

KPMG LLP

National Aeronautics and Space
Administration

Unqualified

PricewaterhouseCoopers LLP

National Science Foundation

Unqualified

CliftonLarsonAilen LLP

Nuclear Regulatory Commission

Unqualified

CliftonLarsonAlien LLP

Office of Personnel Management

Unqualified

KPMG LLP

Small Business Administration

Unqualified

KPMG LLP

Social Security Administration

Unqualified

Grant Ttiornton LLP

State

Unqualified

Kearney & Company

Transportation

Unqualified

KPMG LLP

Treasury

Unqualified

KPMG LLP

Veterans Affairs

Unqualified

CliftonLarsonAilen LLP

Source GAO

"Reported noncompliance with applicable laws and regulations and/or substantial noncompliance with
one or more of the Federal Financial Management Improvement Act requirements.

*The auditors of the U.S. Agency for international Development's {AID) fiscal year 2012 financial
statements issued a qualiried opinion because of the effects of a number of unsupported adjustments
on AID'S financial statements

'The auditors expressed an unqualified opinion on the Department of Health and Human Services'
fiscal year 2012 accrual-based financial statements, but were unable to express opinions on the
department’s 2012 Statement of Social Insurance and 2012 Statement of Changes in Social
insurance Amounts.

*rhe auditors of the E)epartmenl of Homeland Security's (DHS) fiscal year 201 2 financial statements
issued a quali^d (^mion because of OHS's inability to provide sufficient evidence to support certain
components of property, plant, and equipment and heritage and stewardship assets presented in the
finandal statements and notes.

{198729)

Page 2S

GAO-13-752T

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Please Print on Recycled Paper.

Chairman ISSA. Thank you.

I will recognize myself for a series of questions. In your prepared
statement, one of the things, and in the briefing that we received
before this hearing, one of the things that you note is that when
government does business with government. Federal Government
agency to agency, something that we want to encourage in a num-
ber of ways.

They actually do a very poor job of tracking that. This committee
has passed previously the Data Act. It died in the Senate. Our be-
lief is that it died in the Senate mostly because it pushed back on
recipient reporting, that recipients of grants didn’t really want to
be held accountable. But those were, and maybe that is not com-
pletely unfair, they complained it was burdensome. But clearly,
that was one of the areas that we have continued to work on to
try to make it more acceptable.

But had the Data Act been passed with government systems
being required to have meaningful meta data, so that in fact there
is a transparency, would that have improved this government to
government accounting?

Mr. Dodaro. Having data standards that are included in the
Data Act and regular reporting would have been very beneficial to
addressing these issues. That information then can be, and should
be, tied to the financial systems and the agencies and having more
rigor in place. I am very supportive of the Data Act that has been
put forward. I commend the committee for its role in that area. I
think without legislation, it won’t happen. And I think that is very
important, and would be helpful in addressing these issues.

Chairman IsSA. I might note for the record that a previous 0MB
director now in a new job is beginning to see the benefit of that
information differently than when it was his task to do it without
legislation.

You mentioned the deficiencies in the government-wide website.
Is part of that deficiency, in fact, that without meaningful struc-
tured data you are really not producing rich data in an automated
way, but rather posting to the website as though it was an adver-
tisement? I am not trying to belittle it, but isn’t that a certain
amount of what that website is, is manually grabbed information
posted to try to make people aware of what is going on?

Mr. Dodaro. The website, if you look at it, there is a lot of infor-
mation on it, but it is hard to find exactly what you need. And it
is not as searchable, for example, as the recovery.gov website. I
think more effort needs to be put into making sure people under-
stand how the public. Congress and other people want to use the
information. It is not very user-friendly.

Chairman IsSA. Let me ask you a question, and you may have
to go to one of your assistants. When we are looking at the 21st
century, the word website versus data mineable data base available
to the public, isn’t there a huge difference in which a website is
fine for a novice to go search and hopefully find the form they need
or the information they need? Well, if we were to mandate truly
data mineable bases, then companies and innovators who want to
create these Apple apps and so on could in fact mine that data,
that public data, and make it available in very easy format at no
cost to the government?

Mr. Dodaro. Exactly. I think there is great opportunity to make
government data available to enhance the ability of people, re-
searchers, companies and others, the public, to use that informa-
tion. But the one thing we pointed out, whether we are looking at
usaspending.gov, the Data Act or data.gov, performance.gov, is the
quality of the information and the reliability and accuracy of the
data. That I think is paramount. That always isn’t really assured,
Mr. Chairman. I think that is a real limitation.

We can make a lot of data available. But if it is not reliable and
it is not accurate, it is not as helpful as possible.

Chairman ISSA. We are trying to look for examples that do work.
Would one of those examples perhaps be where the FAA opened up
the core data of where aircraft are within the system, so that peo-
ple could track their incoming flight with apps that were made
available after the fact? That is my understanding, is both weather
and FAA are examples of data that has become available for inde-
pendent development.

Mr. Dodaro. I would have to get back to you.

Chairman IssA. I would appreciate if you would do that for the
record. I would like to the greatest extent possible for the public
to understand, and we will create a link to some of those examples,
if we can work with your staff.

Now, you mentioned food safety. This is the committee of over-
sight, but it is also the committee of reform. Some years ago, the
President noted that food was controlled by multiple agencies in
rather obtuse ways. If I remember right, his examples were, where
salmon were swimming affected where they were under their con-
trol. And then of course, that was live. Then when you get into var-
ious foods and food groups, you could be at the FDA, Department
of Agriculture, a number of others.

Should this committee consider consolidated food safety a re-
organizational plan that would make food a single point of account-
ability, whether or not it leveraged existing agencies, so that the
American people could see food safety as a single point of account-
ability?

Mr. Dodaro. Yes.

Chairman IsSA. Thank you.

I love a great witness. For all of you here today, that is an exam-
ple of a really great witness.

[Laughter.]

Chairman IsSA. My time is expiring. I mentioned in my opening
statement the challenge of data accountability under the Affordable
Care Act. I know that that is not the primary concern of this hear-
ing. But for the GAO, is this not by definition next year’s high risk,
the fact that in 70 days, we theoretically will implement the Afford-
able Care Act, and at that point, this IRS data and a confluence
of other information to exchanges not even yet up and running, and
in some cases not defined, will become law?

Mr. Dodaro. That is an area we are definitely going to focus on.
I have been concerned. In fact, we have computer security as a gov-
ernment-wide high risk area. And we have focused on that for a
time. We have looked at the exchanges. Some of them are going to
have difficulties making sure they are established on time, which

leads you to believe they may be taking shortcuts to be able to get
up and running on time.

So I think it definitely has all the characteristics of a potential
high risk situation.

Chairman ISSA. Thank you. My time is expired. I recognize the
ranking member.

Mr. Cummings. Thank you very much.

I just want to follow up on what the chairman was just asking
Mr. Dodaro. Tell me what form, tell me how that has come about
that you are looking at the Affordable Care Act. Tell me what form
that is taking. Do you follow me? I just want to know how that
course of action started and what you are looking at.

Mr. Dodaro. Right. We have been asked to look at a number of
areas on implementation of the Affordable Care Act. For example,
we were asked by the Congress to look at the status of exchanges
that were set up either by the States who were going to run the
exchanges, or the Federal Government’s actions to set up ex-
changes for that, both for the general public, also for small busi-
nesses as well. We have issued a series of reports on those areas.

We have looked at some of the initial implementation issues at
the IRS, and I would ask Mr. Mihm to come up and explain a little
bit about what we are doing there. But we are going to be doing
a little bit more work on this in the future.

Mr. Cummings. Mr. Mihm, would you tell us what kind of guid-
ance, if any, you are giving to any agencies with regard to the Af-
fordable Care Act?

Mr. Mihm. Yes, sir. The primary areas that we have been focused
on in regards to IRS has been the extent to which they have been
using a disciplined approach to risk management in understanding
the risks that they face in order to implement their responsibilities
under the Affordable Care Act, whether or not they have identified
those risks, have risk mitigation plans in place, the right set of
leadership structure on that. We made a series of recommendations
to them about how they needed to strengthen that, and in par-
ticular how they needed to work better with HHS.

Now, this was a year and a half, two years ago. We need to fol-
low up on that work again and go back and make sure that the
recommendations that we had have been effectively implemented.
But the last time that we looked, which would be about six months
ago that they were making progress in those areas of under-
standing at least how they needed to manage risk in that regard.

Mr. Cummings. And so when do you all plan to follow up to see
whether they have been implementing those things? In other
words, the status of your suggestions or recommendations?

Mr. Mihm. We have routine requirements in GAO that we have
to follow up periodically on them. Obviously, given the interest of
this committee we will make sure that it is the very highest pri-
ority.

Mr. Cummings. Very well.

Mr. Dodaro. We have had, Mr. Chairman, if I might elaborate
a little bit further, we had a number of mandates in the actual Pa-
tient Protection and Affordable Care Act for us to do certain work.
I would be happy to provide a complete listing to this committee

of the work that we have done so far, and what our plans are going
forward.

Mr. Cummings. I would appreciate that.

Now, Mr. Dodaro, as your report notes, the Defense Department
is responsible for more than half of the government’s discretionary
spending, but it has never been able to produce a reliable financial
statement. Twenty years ago, in 1993, GAO issued a report with
the following conclusion: “In our opinion, efforts to address defi-
ciencies and improve financial management have been slow with
DOD.”

Four years later, in 1997, GAO issued a similar report that said
this: “Longstanding serious weaknesses in the Department’s finan-
cial operations continue not only to severely limit the reliability of
DOD’s financial information, but also have resulted in wasted re-
sources and undermined the Department’s ability to carry out its
stewardship and responsibilities.”

Another four years later, in 2001, GAO examined DOD’s plan for
reliable financial statements and said this: “This plan presents the
military services and DOD’s components stovepiped approaches to
information and financial management and does not clearly articu-
late how these various efforts will collectively result in an inte-
grated DOD-wide financial management system.”

Yet another four years later, in 2005, GAO said this: “To date,
tangible evidence of improvement has been seen in a few specific
areas. DOD is still in the very early stages of a department-wide
reform that will take years to accomplish.”

You see the pattern.

Mr. Dodaro. I have seen it first-hand.

Mr. Cummings. Yes. Here we are in 2013, and you are still tell-
ing us again the DOD still cannot get a clean audit. Why is that?
I kind of think the American people would be shocked that we can’t
get that done. What seems to be the problem? Is it a matter of will?
Is it too big to account for? What is it?

Mr. Dodaro. There are several different factors that we have ob-
served. We have had it on our high risk list since 1995, DOD finan-
cial management.

Mr. Cummings. So it is getting ready to reach its 20th anniver-
sary.

Mr. Dodaro. Yes. There are a couple of issues. One, they oper-
ated for many years, and decades, without a requirement to
produce audited financial statements. The first requirement that
was ever in effect was for fiscal year 1996, across the Federal Gov-
ernment. So they operated many years, so their systems were de-
veloped and still are in existence that aren’t able to communicate
with one another, they don’t have common data standards across
the department, et cetera. So you have a huge enterprise that has
operated without fiscal discipline for many, many years.

Secondly, right after the Act was passed, I don’t think that their
commitment was anywhere near as strong as it was today. I think
the Congress has become increasingly concerned, and now has
mandated that they be auditable by 2017, and their statement of
budgetary resources by 2014. So Congress has gotten more in-
volved, but it needs to stay more involved in these efforts. They fi-
nally have a good plan, they are focusing on budget data right now.

I think originally the department managers didn’t believe they
needed audited financial data in order to carry out their respon-
sibilities. So right now, they have focused on budget information,
which everybody agrees they need and should have, and the exist-
ence and completeness of assets, which they need to carry out their
mission.

So I am hopeful this will produce the results. But they have very
serious problems. And it is not going to happen overnight. It won’t
happen without continued focus.

Mr. Cummings. To the chairman’s credit, and to the credit of this
committee, we have constantly tried to concentrate on efficiency
and effectiveness. I am just trying to figure out, how bad a problem
is it? In other words, is it such a crucial issue that we may be los-
ing billions of dollars and not even know it?

Mr. Dodaro. Yes. It is a very serious problem. I think it under-
mines not only accountability, but the ability to operate efficiently
and effectively. There is reportedly about a third of the Federal
Government’s assets that are at the Department of Defense.

Mr. Cummings. So if we were to accomplish anything that would
be a part of our legacy of being in Congress, if we got that done,
that would be major?

Mr. Dodaro. Exactly. I am trying to do my part to get it done
before my tenure ends. I think it is one of the most important
things that we could collectively do.

Mr. Cummings. Thank you very much, Mr. Chairman.

Chairman IssA. For the record. Gene, you have what, over eight
years left?

Mr. Dodaro. I have twelve. Twelve and change.

Chairman IsSA. It is not that optimistic.

Mr. Dodaro. I know. I know. But I am being realistic, given the
track record. I said before, I didn’t say at the very end.

[Laughter.]

Chairman IssA. Well before, we would like to hear.

But for the record, the ranking member did repeatedly say that
the Department of Defense is the largest discretionary. But actu-
ally, isn’t it true, it is the third largest spender compared to Health
and Human Services and Social Security? If you compare Medicare
and Medicaid, obviously that is larger.

And the question I want to make sure gets on the record, didn’t
Health and Human Services and Social Security, to a certain ex-
tent, get qualified or unqualified audits, even though they had
some major gaps?

Mr. Dodaro. They received an unqualified audit on their finan-
cial statements. There is a separate financial statement for social
insurance.

Chairman IsSA. And they flunked big time?

Mr. Dodaro. That we did not give an opinion on.

Chairman IssA. Great.

Mr. Dodaro. The uncertainty of achieving the cost estimates
that are expected in the Affordable Care Act, the trustees pointed
out the uncertainties, CMS actuary pointed it out, the auditors for
HHS pointed it out. So it wasn’t just us. And there are a lot of un-
certainties there.

Chairman ISSA. Thank you. And I thank the ranking member. It
is one of those areas in which we know we have to work on DOD,
we also know we have to work on the entitlement oversight.

Mr. Mica?

Mr. Mica. Thank you. Welcome back, Mr. Comptroller.

Your report indicates that only a little over a third of the Federal
managers have actually conducted performance evaluation of their
programs. I think 37 percent, is that correct?

Mr. Dodaro. That is correct. And that was in any one of their
programs over a five-year period.

Mr. Mica. Well, from my perspective, having been here a while,
you see these agencies, government in general, spinning out of con-
trol, not getting a decent evaluation of their performance or even
their agency being auditable. We really can’t perform an audit of
the Federal Government or most of its agencies, isn’t that also cor-
rect?

Mr. Dodaro. Most of the agencies can now get an unqualified
opinion. But the big ones, DOD and DHS, cannot.

Mr. Mica. The worst, you say, is DOD, one of the worst. I think
the chairman referred to others that have spun out of control. The
problem you have, though, is you don’t get these agencies to re-
spond. I have passed specific provisions, I know some at least three
times since 2002, to get certain things done, and perform. And the
agencies ignore law.

Now, we do have you, we have inspector generals, and 0MB. It
appears to me that we have to tie performance into some penalty
or some reward. I am wondering if we should give 0MB or some-
one, Congress obviously can’t do it or doesn’t do it. We are hit and
miss. We get our appropriations done, this committee actually is
the one who is evaluating some of that performance, because we
are conducting continual oversight. But you have those that au-
thorize programs, and then fund them.

So I am wondering if 0MB might be the agency, or if you had
any suggestions as to who you could get to wield a hammer and
I guess withholding funds. They don’t seem to, we call them in and
they ignore you, you just don’t get the attention.

It is surprising, too, with the military, usually the military works
on commands, and they are usually one of the most responsive. But
again, we are not getting their attention. Any ideas on having
0MB being able to withhold funds or some penalty?

Mr. Dodaro. I think 0MB would be a good place to start, along
with the Congress, particularly the appropriation committees.

What I think is fundamentally broken is the incentive. Right
now, if you want to stop a Federal program or you want to curtail
it, the onus is on those that come up with evidence to do it. There
is no evidence-based approach to this. In other words, a program
should have to demonstrate their having a positive effect in order
to get continued funding.

Mr. Mica. Yes, that is sort of a self-evaluation, too. It is not an
evaluation in comparison to how a task or responsibility could be
accomplished by some other means, either the private sector or by
some more efficient method.

It is my guess that we have probably done overpayments in the
billions, multi-billion dollar area because of this. Would that be a
correct assumption?

Mr. Dodaro. Yes, well, we point out the improper payments as
the material weaknesses across the Federal Government. There are
four agencies with ten programs that still aren’t performing.

Mr. Mica. We are looking at a multi-billion dollar

Mr. Dodaro. Well, the latest estimate was $107.7 billion in im-
proper payments for fiscal year 2012. That is not complete, not ev-
erybody has reported. So it is a huge problem.

Mr. Mica. It is an astounding number. And again, we have no
means of bringing these agencies under control. Again, we haul
them in, we question them, we put caveats and report language
into appropriations language. You modify authorization and still
things don’t get done.

So I think we have to look at some hammer and maybe giving
0MB some ability to withhold funds. That does get people’s atten-
tion. They know they can mess around with Congress, because half
the time we are doing CRs, and you get sort of a general, the last
five or six years, you just get a general appropriation. They don’t
pay much attention to us. But someone has to gain control of bu-
reaucracy that has spun out of control.

Mr. Dodaro. One other suggestion I have, the Government Per-
formance Results and Modernization Act of 2010 requires 0MB
now to list programs that aren’t effective.

Mr. Mica. Listing is nice, but I think we need to give them some
teeth to bite.

Mr. Dodaro. Well, I agree, but I think it is a platform for this
committee to then hold hearings and have them determine why
other programs, where we have some evidence of not being effec-
tive, aren’t on the list. But I agree with your fundamental issue.
I am just saying there is another avenue.

Mr. Mica. Thank you.

Mr. Lankford. [Presiding] Thank you. Mr. Lynch?

Mr. Lynch. Thank you, Mr. Chairman.

And to Mr. Dodaro, good to see you again. I certainly appreciate
the work you are doing. We have had a chance to work together
in the past, and I think you are doing the right thing at GAO. I
appreciate the work of your staff as well.

IJnfortunately, in this committee sometimes, and in Congress
generally, the degree of oversight that we conduct as a Congress
is dependent on blameworthiness. In other words, we lurch from
scandal to scandal and it is the same when the Republicans are in
the majority versus the Democrats, we would both hear the same
thing. We seize upon issues to conduct oversight based on our abil-
ity to embarrass the other side, or if there is a President of the
other party in office, then the party that has control of this com-
mittee generally goes after issues that can put that Administration
in a bad light.

And so that leads me to a great concern on this issue. Because
this has been so widely fumbled over Administrations for a long,
long time, our ability to get this data correct and then make it
transparent so that we can exercise meaningful government over-
sight is greatly, greatly inhibited. So I am worried, because there

is no blameworthiness here that we up here won’t focus on this at
all, that we will have this hearing and we will go look for some
other issues that will get us headlines where this work is really
meaningful and it will, if we get it right, it will greatly help us on
a lot of issues across the board.

I am greatly disappointed, still, over our inability to get DOD to
get their act together. It is a huge amount of our resources going
to the Defense Department. And it boggles the mind that the NSA
can tell me how many times Aunt Margaret calls Aunt Matilda, yet
I can’t get a verifiable audit from the Defense Department on how
much money they are spending. It just blows my mind.

I actually think that sometimes the complexity and the pushback
that we get from DOD is purposeful. They don’t want us to be able
to track what they are spending. I know now in this age of seques-
tration that they are sort of changing their attitude a little bit and
coming up with some new ideas. But I would just ask you to stay
on that piece, because that is a black hole right now. We cannot
figure out what they are spending.

It is as important to them that we get that information as it is
to the American people and to the taxpayer. Because if we assume
that they are still getting barrels of money, we are going to cut. We
are going to keep cutting and cutting and cutting, and we won’t
know when we get to the bone with the Defense Department if we
continue to operate in this way. We have a sense that they are
spending a lot of money and we will just keep cutting. You see that
on the votes of the House, more and more members are willing to
cut the Defense Department, because there is this unverifiable
sense that they have huge resources there. If we continue to cut
away, I think at some point we do get to the bone.

But what I want to ask you is about government oversight. We
have a core responsibility here in Congress to make sure that we
conduct meaningful oversight of executive operations in the bills
that we pass on a regular basis. And during the sequestration, we
are getting a lot of pushback, members on this committee trying to
do oversight, whether it is drug interdiction coming out of Colom-
bia, whether it is what is going on in Afghanistan, what is going
on in Syria, Lebanon. Our ability to conduct oversight is being de-
nied because of sequestration. I just want you to talk a little bit
about the importance of Congress fulfilling their constitutional re-
sponsibility to conduct meaningful oversight.

Mr. Dodaro. I think rigorous oversight by the Congress is of
paramount importance. If you look at the history of our high risk
list, which we do for this committee and the Senate, most of the
areas that have come off the high risk list have come off in large
part because of continued Congressional oversight. And the prep-
arations for the last Census, there were 12 hearings that were
held. I can give you many other examples.

But unless there’s top attention by top officials in the executive
branch and rigorous Congressional oversight, these difficult prob-
lems will not get solved. We have ample evidence of that. I am con-
vinced of it. But it can’t be just the one hearing once a year where
they can just say, okay, we will go up there and sort of answer the
questions one time. There has to be a sustained series of hearings
with interim milestone of progress that would be assessed.

Because as you said, part of the problem with the Defense De-
partment, they have always had long-term goals. We will get there
in five years, ten years or whatever. Now the Congress has set
some interim goals. And I think a series of hearings could be held
on why they are not meeting the interim goals if they don’t meet
them. And I think that lays the groundwork for more meaningful
Congressional oversight.

But unless that happens, I am not that optimistic.

Mr. Lynch. Thank you. Gene. Thank you, Mr. Chairman. I yield
back.

Mr. Lankford. Thank you. Mr. McHenry?

Mr. McHenry. Actually, I want to follow up on what Mr. Lynch
asked. It is a solid line of questioning.

Now, there is a different emphasis today, we are talking more
broadly on our side of the aisle on government spending and the
other side of the aisle is about DOD. It is just more of an emphasis.
But we all share the same concern. I think Mr. Lynch, when you
talk about the wider bipartisan agreement now, but we have to
look at Defense spending as well. We have to make sure every
dime we spend there is appropriate and actually meeting the objec-
tive.

Now, that for a long time has been driven by your side of the
aisle being adverse to Defense spending and our side of the aisle
embracing it. Now, the realities are setting in; we actually need to
make sure that every penny, regardless of where it is in govern-
ment, is very, very well spent and not just simply honoring our
commitment to Defense. I certainly appreciate and concur with you
on that.

We also are on the Financial Services Committee. What we see
there is with rule implementation, you don’t have harmonization
between the CFTC and SEC, for instance. And I would like to
thank GAO for the report they produced as a mandate within the
JOBS Act on the utilization of Reg A, which is the smaller dollar
offering, so that businesses can raise up to $5 million.

This was well-utilized up until maybe a decade or two ago, where
companies would raise up to $5 million, utilizing this option. And
then what we found was, in 2011, you had one offering. And the
SEC didn’t look at this and say, hey, maybe this is the problem.
We need to make sure that businesses can get the capital they
need.

So the question I have for you is, do you see, and based on your
experience, based on the work you put together, that Congressional
oversight has led agencies to actually meet their goals?

Mr. Dodaro. Oh, definitely. Yes. There are many examples of
doing that. And so I think that is critical, in order to do that, either
through hearings, requirements and authorization bills and appro-
priations bills, et cetera. Congressional oversight can bring about
many constructive changes and help agencies to achieve those goals
by eliminating, in some cases, barriers, by creating legislative vehi-
cles and by strategically making good investments where the agen-
cies need to make those investments. Absolutely.

Mr. McHenry. How can we enhance collaboration between agen-
cies?

Mr. Dodaro. That is an issue. Now, the Results Act of 2010 re-
quires more consultation across the agencies. What one of our find-
ings was in this recent report was that when the cost-cutting goals
are now set, and there are 14 interim ones that are set by the Ad-
ministration, all the agencies that should have been involved in
those cross-cutting goals weren’t involved. So we identified some
additional opportunities for collaboration.

I think the Congressional challenge is where those cross-cutting
goals cross multiple jurisdictions, I would recommend, and have
recommended that there be more joint hearings between selected
committees in the Congress, both within each chamber and per-
haps even across chambers. Because otherwise, there won’t be a to-
tality and a good picture to look at over a period of time.

Mr. McHenry. Well, we hear you on that. And on the Oversight
and Government Reform Committee, we have done, I think, a pret-
ty good job of actually teaming up with other committees, and even
at the subcommittee level, making sure we have joint hearings.
That is more so where it is done.

Mr. Dodaro. Right. We have also published the best practices
guide on how to promote more collaboration among the agencies. It
is particularly important when you have these inter-agency groups
that there is clear responsibilities, there is clear structure, they set
goals, they set milestones. A lot of times, we find that inter-agency
groups are created, but they really don’t set rigorous milestones.

Now, sometimes Congress has done that legislatively for them,
either require these groups to be formed or to set particular goals
for them. So that is another avenue. But I would be happy to pro-
vide this committee our best practices report on collaboration and
provide any other support we can to help you in that regard.

Mr. McHenry. We appreciate the work the General Account-
ability Office, the GAO does. We certainly appreciate the good folks
you have working for you and behind you today, and behind them,
that are in that dungeon-like bunker that is the GAO head-
quarters.

Mr. Dodaro. The sturdy building.

[Laughter.]

Mr. McHenry. Quite sturdy. Intended to be the National Ar-
chives, if I remember correctly, an Archives facility. So we need to
get you a little more natural light over there. But we certainly ap-
preciate the light you shine on important agencies.

With that, thank you, Mr. Chairman.

Mr. Lankford. Ms. Duckworth?

Ms. Duckworth. Thank you, Mr. Chairman. And Mr. Dodaro, I
just want to say that having been over in that building, it is filled
with a lot of warmth from your workers. That makes up for the
lack of light.

[Laughter.]

Mr. Dodaro. We will continue with the theme, absolutely.

Ms. Duckworth. Yes, exactly.

Mr. Dodaro, in your written testimony, you noted that Federal
entities reported estimates of improper payment amounts that to-
taled $107.7 billion for fiscal year 2012. Does that include the
DOD’s estimates as well, in that number?

Mr. Dodaro. Some of the DOD estimates aren’t included in
there. There were problems with their estimating process, I believe.
So 0MB did not include them and some other agencies in there.

There are also some big programs that aren’t in there yet, Con-
gresswoman Duckworth. The Temporary Assistance for Needy
Families, the TANF program, the direct loan education program is
not in there yet. So that estimate is not complete.

Ms. Duckworth. Okay. That is what I was trying to get to, be-
cause DOD is responsible for more than half of the Government’s
discretionary spending, and yet in your testimony you highlight the
improper payment estimates, the shortcomings of DOD’s financial
management.

If DOD can’t even properly estimate its own improper payments,
doesn’t that heighten the government’s overall exposure to waste,
fraud and abuse?

Mr. Dodaro. Definitely.

Ms. Duckworth. And some of those specific weaknesses that
GAO has identified include DOD’s failure to do the following
things. They have not yet developed an appropriate sampling meth-
odology for estimating improper payments, they have yet to
produce a statistical estimate for its largest program, the DFAST
program, which is of course personnel pay, commercial pay. And
also they have failed to maintain key documentation supporting
improper payment estimates. Is that correct?

Mr. Dodaro. Yes.

Ms. Duckworth. How concerned are you with DOD’s failures in
these areas?

Mr. Dodaro. I am very concerned. And I have been for years.
That is why we have put them on our high risk list in 1995, to try
to shine a light on this problem, both for this Congress and to un-
derscore to the Executive Branch how concerned we are about the
situation over there. I think not only not only do you not have good
accountability, but they are hampered in their ability to effectively
make good timely decisions over there, because of the lack of good,
reliable information.

Ms. Duckworth. So what do you think is keeping them from de-
veloping some of these processes that are in place at other agen-
cies, such as the statistical estimating and some of the tools that
are being used? Why is DOD unable to do this?

Mr. Dodaro. As you know, they are a very decentralized, large
agency. And there needs to be central direction and management
and leadership there to really bring this problem home. Because a
lot of the data crosses across multiple parts of the Department in
order to be able to pull the information together. For example,
DFAST makes the payments, but you have the personnel records
in another part of the Department. They don’t match. They can’t
be reconciled appropriately.

So there hasn’t been in the past, they are trying to do it now,
but really top level management attention and authority that can
enforce the change across the entire Department.

Ms. Duckworth. So until some sort of centralized management
or process is established at DOD, knowing that that is not there,
how is DOD doing with regard to cutting waste and fraud by reduc-

ing the amount of improper payments, even if it is very decentral-
ized in how they are going after it?

Mr. Dodaro. Let me bring up, Asif Khan is focused on DOD fi-
nancial management. I have given him the unenviable job of trying
to make sure there are improvements over there.

Mr. Khan. Thank you. Congresswoman Duckworth. That prob-
lem is going to continue to happen. It really has to be fixed at the
local level, where the transaction originates. It is going to be some
time before they begin to address that problem.

Ms. Duckworth. Is the improper payments also tied to, this
committee had testimony in previous hearings on just not keeping
track of how we are paying contractors, what we are being charged
by contractors is not accurate. Is that all part of this, especially
overseas, Afghanistan?

Mr. Khan. Yes, it is.

Ms. Duckworth. It is, okay.

Mr. Dodaro. Yes, but on the waste, fraud, potential mismanage-
ment issues, DOD occupies about one-third of the 30 areas on our
high risk list. Because it is not only financial management, we
have inventory management, contract management on there, weap-
ons systems acquisition. And all those areas are susceptible to
problems. That is why we have them on our high risk list.

Ms. Duckworth. Thank you, gentlemen. Thank you, Mr. Chair-
man.

Mr. Lankford. Thank you. I would like to recognize myself.

Mr. Dodaro, thank you as well, and your whole team, for the
work that you do. I am trying to find out what we do know at this
point and what we can know and what we don’t have a capability
to find out. So just let me run through a couple of things.

Can we at this point identify a list of all government programs
that we have a list of, we know the agencies, the actual programs
that exist at those agencies, does such a list exist that we can actu-
ally track and go through and compare?

Mr. Dodaro. Not yet in any complete reliable way. I will ask Mr.
Mihm to come up. The Modernization Act of 2010 required 0MB
to come up with such a list. They have produced now a list for each
major department and agency, just recently, within the last month
or two. Many other agencies have yet to report their list. We are
looking at the list to make sure. Each agency was left to decide the
definition of a program. So I don’t know if there is consistency yet
across what is there or not.

But it is in process now. It is very much needed, but I don’t be-
lieve it is complete yet.

Mr. Mihm. That is exactly right. There is, the list is out there,
at least the first part of the list is out there. There is not com-
parability across agencies. One of the things that we are evaluating
is under a mandate that we have under the Modernization Act to
periodically report is we are looking at that list and will be report-
ing to this committee and others on it.

Mr. Lankford. Will that list include a number of employees, and
the administrative costs of the program, or just an actual list of the
program itself?

Mr. Mihm. At this point, sir, we are a bit away from being able
to get to the programmatic cost data on that. We are just working.

or 0MB is just working on, let’s just identify what government
does in a consistent way.

Mr. Dodaro. One of the limitations we have had when doing
that overlap and duplication work is the lack of cost information,
budgetary information for many of these programs. Once you get
the list, that is really the next thing that needs to be put in place.

Mr. Lankford. Okay, step one, to know every building we have
in Washington, D.C., and who is actually in there.

Mr. Dodaro. Right.

Mr. Lankford. Step two, is a list of all the different departments
that are within it. Step three, getting a chance to get a list of all
those programs. And then we have to move to how much is the ad-
ministrative cost for that program, how many employees are dedi-
cated to that program.

Do we have any ability at this point to then take to that pro-
gram, what are the metrics that you are using to find out if this
is effective? It may have a great title for the program, but does it
actually do anything? And is it accomplishing anything?

You had mentioned several points about metrics and standards
and evaluating. How far away are we at this point, or is there any
requirement that is out there that we actually get metrics for these
different programs?

Mr. Dodaro. There are requirements in the Government Per-
formance and Results Act. But our work basically shows that is
very uneven across the Federal Government. There may be
metrics, but some of them are not outcome based, where you know
the results of the program. You might know program activity. For
example, how many people have been trained. But you won’t know
exactly how many people actually got a job or the results of that.

So I think that is a work in progress. But we point out in our
reports much more needs to be done in measuring performance,
both outcome, and then evaluating performance with program in-
formation that looks at trends and metrics over time, why you are
falling short, how can it be improved.

So there is a ways to go until you have uniform, good, not only
metrics, but good results across Federal Government.

Mr. Lankford. What is needed for that from us? Is that an 0MB
issue that they need to work out? Is there a statutory requirement
that needs to be put in place to help provide a push to say, we have
to have some way to be able to evaluate effectiveness or programs
and to even know how many beneficiaries? You mentioned we don’t
know how many people are trained for a job, but we don’t know
how many people actually got a job.

I am not even sure, when I look through some of the programs,
I can’t even find out how many people were even trained for a job.
It is just, this is the program that exists, no definition, no staff, no
metrics, no number of beneficiaries, anything.

Mr. Dodaro. And the real question, even if they did get a job,
did that training help them get the job, or maybe many other fac-
tors had an influence on their ability. So unless you have that in-
formation, you don’t know whether you are getting a good return
on your investment. But Congress can do a lot more both through
the consultation process under GPRA where they are required to
be. I have recommended to the Congressional committees that you

outreach to the agencies and say, hey, you are supposed to he con-
sulting with us. Let’s talk about these things. These are the meas-
ures we would like to see put in place and improvements being
made.

Then there is the oversight process and legislative process. Chris,
anything else?

Mr. Mihm. No, I think on the consultation, it is a particularly im-
portant opportunity for this committee and other committees.
These consultations should be starting this summer on the goals,
on the strategic plans that are to come out with the President’s
next budget, as well as the agency priority goals. Those are the
four to six top priorities that each agency is to establish. They have
to consult with the Congress on those. And it is a very important
opportunity to try to get a common understanding about what are
we trying to achieve and how are we going to measure that per-
formance.

Another big opportunity, and this is really one of the great in-
sights of the Modernization Act, is it requires quarterly meetings
to be held in the agencies on each of these agency priority goals.
And then to discuss where are we, what do we need to do to im-
prove and then rigorous follow-up to take place after that. It is
modeled after what happened in New York City in the early 1990s
called CompStat, and it has been used in CityStat and StateStat,
the so-called Stat model. That data is to be published or is being
published on performance.gov. That provides another great over-
sight opportunity. Because those are the priorities that the agency
has established and so you can really follow up with them and say,
where are you in terms of achieving those goals.

Mr. Lankford. Thank you.

Mr. Davis just walked in. Mr. Davis, I think you are up to bat
next. Are you ready for questions, or do you want to defer? You just
walked back in, so let me do this. Mr. Meadows.

Mr. Meadows. Thank you, Mr. Chairman. And thank you for
being back with us, I thank each one of you for your hard work.
I know that it is the support team that makes a big difference, as
you will acknowledge.

I am troubled that we have hearing after hearing after hearing
and really nothing happens. When you talk about over $100 billion
in really unaccounted for spending, it is one-tenth of our deficit.
When we put it in perspective, that is one-tenth, we are sitting
here trying to scramble, as members of Congress, to find $86 bil-
lion. And you have found more than that just in funds.

I set up new offices, and when I did that, I found, I went out and
negotiated with governments to make sure that we didn’t have to
pay for leases. So I am sitting there scrimping for $250 or $500 or
$1,000, so it is very frustrating when I see it, and I know you
empathize.

One of the things that came up that gave me great concern
though is we started sending rental payments to one of those ven-
dors that never was authorized by us, we didn’t even give an
amount. So they just started making up an arbitrary payment. We
wouldn’t have known about it unless the government agency called
us and said, I thought we were giving you this space for free. And

we are paying for it. So this unaccountability is across, it is sys-
temic.

So I want to get to your earlier point. You talked about motiva-
tion and performance. Really, if we don’t control the purse strings,
we don’t have any control. And if we don’t have a motivation where
if you do a bad job you lose your job, or if you do a bad job you
get your budget cut, how do we fix that?

This is not, I would agree with my colleague opposite, Mr. Lynch,
this is not based on this Administration or the prior. It is a sys-
temic problem within government. So how do we fix that? And is
it true? And I will ask this last one and I will let you comment on
both of those.

My understanding is that, until about 10 or 15 years ago, we con-
trolled probably 95 percent of the spending. Now congressionally
we are only controlling about 35 percent. Is that a true statement?

Mr. Dodaro. Yes, that is true. That is because most of the
spending right now is through mandatory programs, whether it is
Medicare, Medicaid or Social Security. The only way Congress can
control that spending is by changing the requirements of who is eli-
gible and what types of payments are made. If you add interest on
the debt, of those three things, mandatory spending is taking up
about 66 percent or so.

Mr. Meadows. Have we exacerbated the problem, though, by al-
lowing agencies, when they get away with earmarks, we allow
them to reprogram and we authorize the spending so they can
move it around and have little penalties there as well? Have we ex-
acerbated the problem with that?

Mr. Dodaro. Well, I don’t think necessarily that would have in-
creased the problem. Because they are supposed to report what
they are changing in most cases, and the Congress has an ability
to inquire on that issue.

Mr. Meadows. We have the ability to inquire but not really stop.
That is what I am finding, is when I call these agencies, they will
talk to me, they have their congressional liaison and they will talk
to you. But really, they are not afraid. Would you agree that most
agencies are not afraid of Congress anymore?

Mr. Dodaro. I don’t know about that. It depends upon if some-
body is just leaving the witness table and you ask them that ques-
tion.

[Laughter.]

Mr. Dodaro. But I do think there needs to be more teeth in
place. To go to your very first question, what I have seen be effec-
tive is when we point out a problem, many times Congress will
fence the money, that means saying, okay, we are going to appro-
priate this money but you can’t spend it until we get a report from
the GAO or some other thing that convinces us that you have a
good plan in place, that you fixed earlier problems. So Congress
has effectively used that. It could do it much more. And I think it
would be more appropriate.

So Congress has the power of the purse strings. It has to be will-
ing to use it effectively to leverage change.

Mr. Meadows. Can your staff report back to us on what we can
do to highlight it so we can put more teeth into it? Because I think

it is time that the American people may want teeth. We look for-
ward to your help there.

Mr. Dodaro. We would be happy to do that.

Mr. Meadows. Thank you. Mr. Chairman, I yield back.

Mr. Lankford. Thank you. Mr. Connolly

Mr. Connolly. Thank you, Mr. Chairman. Welcome back. Gen-
eral.

Mr. Dodaro. Thank you. Congressman.

Mr. Connolly. I want to talk to you about two things. I know
my colleague Ms. Duckworth asked some questions about improper
payments. But in the previous subcommittee, in the last four years,
we had a series of hearings on improper payments. What is the es-
timate, the global number every year we think fall into that gen-
eral rubric?

Mr. Dodaro. The latest was $107.7 billion. But that estimate, in
our opinion, is not complete. There are four agencies and ten pro-
grams that are not yet reporting, including the large Temporary
Assistance for Needy Families. Then there were another six agen-
cies where their estimates were not good enough for 0MB to re-
port.

Mr. Connolly. So it is north of the official figure?

Mr. Dodaro. I believe so, yes.

Mr. Connolly. If we were to say it was rounded out to $125 bil-
lion a year, would that be a fairly safe rounded-out number, do you
think?

Mr. Dodaro. Given how these numbers vacillate. Congressman,
I hesitate to give a guess on that.

Mr. Connolly. Well, if we just took that number for a minute,
we could take $107 billion, too, but times ten, that number of im-
proper payments over a ten-year period exceeds sequestration. Is
that correct?

Mr. Dodaro. Oh, sure. Yes.

Mr. Connolly. And how well do you think the government is
doing in trying to address that program? In theory, if you could get
it to zero, which ought to be the goal, we will never quite attain
that goal, but if you can give yourself a stretch goal, incredible
things can sometimes happen, how well would you assess. General,
that the Federal Government is doing in putting in place mecha-
nisms to bring their respective numbers down?

Mr. Dodaro. I would say there is a fair amount of activity, not
much results yet.

Mr. Connolly. One example, of that total, the lion’s share is
Medicare fraud, is that correct?

Mr. Dodaro. Yes. Medicare, Medicaid, yes.

Mr. Connolly. About $50 billion a year?

Mr. Dodaro. Forty billion dollars, $50 billion, yes.

Mr. Connolly. Do you believe that there is evidence that the
U.S. Attorneys’ offices around the Country, of which I believe there
are 99, are sufficiently seized with this mission to bring that num-
ber down through prosecutions, investigations and prosecutions?

Mr. Dodaro. I know that the HHS Inspector General’s office
works with them. They really focus on that area. I don’t have a
basis for answering that question, beyond knowing and seeing

there are prosecutions in some cases. I really don’t have empirical
evidence to answer that question.

Mr. Connolly. Okay, well, I will give you a data point. One U.S.
Attorney’s office. New England, just one, is accountable for identi-
fying and helping to recover $3 billion of Medicare fraud. One.
There are 98 others. Now, not all of them may be that big. But one
of the things I would urge you to look at is, as part of this, are U.S.
Attorneys’ offices sufficiently seized with this mission? Because if
every one of them replicated the zeal and the commitment of talent
that this one did, we could bring that $50 billion number down con-
siderably.

Mr. Chairman, we were just talking about improper payments
and some of the work this committee has done the last four years
on a bipartisan basis to identify the problem and to try to get Fed-
eral agencies seized with this mission. I was pointing out, Mr.
Chairman, that if you round it out at $125 billion a year, and that
could be a low figure, actually, but we will take that one, times ten,
it exceeds sequestration.

So without raising anyone’s taxes, without slashing any invest-
ments, here is low-hanging fruit, in a sense. And it just seems to
me for want of a champion, for want of some focus, we are not
making the kind of progress we need to be making.

Mr. Dodaro. And I think, on your point, we will look into the
U.S. Attorney’s priorities on that. But that is one end of the prob-
lem, is to keep trying to get it back once it has gone out the door.
The other side is preventing it. And I think for example, we have
a recommendation that they establish surety bonds up front with
new providers. So if you find payments later, the government has
some money that they can offset up front, that hasn’t been fully im-
plemented yet as well.

So there are a whole range of things.

Mr. Connolly. In addition to management, and my time is
about to run out, but the Chairman and I co-authored a bill that
is now part of the Defense Authorization Act and hopefully will be-
come law. It is designed to provide some rigorous tools for Federal
agencies to upgrade their management of IT. Acquisition, mainte-
nance, personnel management. The Chairman identified that, for
example, in the top 26 Federal agencies there are over 250 people
with the title of CIO, which means this, right, no one is in charge,
no one is accountable. Our bill is designed to try to at least have
one main person called CIO who is infused with responsibility, au-
thority and accountability.

The other thing behind this bill, though, is IT, if we are going
to have to live with sequestration or something like it for 10 years,
if you don’t simply want an absolute contraction, a zero sum game,
IT has promise, if properly managed, to help us on so many fronts,
one of which is this, too. So I hope we can also look at how is IT
being deployed so that we are not making the errors that are part
of this hole.

Mr. Dodaro. We are looking at that. We are looking at that, and
you are absolutely right. I am very supportive of the provisions in
that bill.

Mr. Connolly. I just end with this, this is a subject this com-
mittee has done some real trail-blazing work on, I think, through

Congress. It is not a sexy topic, but it has real promise. I would
hope, General Dodaro, that we can work together and try to create
some metrics for Federal agencies. Because without metrics, it is
aspirational. We need to move from the aspirational to the produc-
tive.

With that, Mr. Chairman, I yield back.

Chairman ISSA. [Presiding] I thank the gentleman.

I would say that our legislation really is as close to the swimsuit
edition as you can get in legislation. So I am not sure I go with
the gentleman that there is no appeal to it. I think it is pretty at-
tractive.

Mr. Connolly. I stand corrected.

[Laughter.]

Chairman IsSA. Mr. Bentivolio.

Mr. Bentivolio. Thank you, Mr. Chairman. Thank you. Comp-
troller General. Thank you for being here today.

After listening to your testimony today, I can’t help but remem-
ber a story a constituent told me, it is called government account-
ing, how you tell the story. Perhaps you have heard it, but just
bear with me, about the three gentlemen walking down the street.
It starts to rain, they each have $10. So they pool their money to-
gether and get a hotel room for the night. And the hotel manager
later discovers that he overcharged them $5.

So he calls over the bellhop and wants the $5 returned to the
three gentlemen who pooled their money together to get the room.
On his way up to the room, he pockets $2 and he hands each of
those three gentlemen back $1. They each originally contributed
$10, minus $1 is how much?

Mr. Dodaro. Nine.

Mr. Bentivolio. Nine, three times nine?

Mr. Dodaro. Twenty-seven.

Mr. Bentivolio. Plus the two in the bellhop’s pocket?

Mr. Dodaro. Right.

Mr. Bentivolio. Where is the other dollar?

[Laughter.]

Mr. Bentivolio. That seems to be the question. I find it startling
how much taxpayer money we have seemingly lost track of in the
Federal Government. Many government programs are on auto-pilot
when it comes to their budget. Every year it is assumed that they
need more money with zero-based budgeting, which would force
agencies to justify every penny of taxpayer money they get to spend
every year to help agencies account for the money that they re-
ceive.

Mr. Dodaro. Pardon me, I am not sure I understood the ques-
tion. I am still trying to figure out where the $2 went.

[Laughter.]

Mr. Bentivolio. One dollar.

Mr. Dodaro. One dollar, right.

Chairman IsSA. Well, we would be thrilled if there was only $1
that was unaccounted for.

[Laughter.]

Mr. Bentivolio. Government accounting could add up to billions.

Mr. Dodaro. Yes, definitely

Mr. Bentivolio. When I explain that, it seems to me that is how
government agencies account for their money, that is how they tell
the story. We all know 25 plus 2 plus 3 is 30. So we can account
for the money. But it seems that the government doesn’t under-
stand that. And they seem to lose a lot of money. It seems to me
that if we got rid of the waste and abuse, we could probably afford
a lot more or pay down our national debt.

But my simple question is, would zero-based budgeting, which
would enforce agencies to justify every penny it takes of your
money they get to spend every year, help agencies account for the
money that they receive?

Mr. Dodaro. I think that that effort has been tried a bit in the
past. I think it has some potential value if it is implemented with
a lot of less administrative sort of burden. But the idea though, of
justifying the programs by showing good results, I would support
that ahead of time. In other words, you have to justify the pro-
gram’s achieving its objectives with some empirical data that has
been independently validated. I think that is the way to go.

Mr. Bentivolio. Zero-based budgeting?

Mr. Dodaro. It would justify what you are going to spend the
money for if you have good information. I mean, a part of this is,
you can send people to go through all the requirements, they will
generate volumes of information, but it may not be accurate, it may
not be good information and it may not be convincing. So it em-
barks on a big process where, at the end of the day. Congress is
still left, even though it may be generated from a zero basis, with
a lot of information that really doesn’t help them make a decision
on how to fund the money.

So to me, it would be better to focus on having them demonstrate
results of the programs and justify the expenditures for the results
that they are receiving. Right now, that doesn’t happen. If you
want to try to curtail a program or limit it, you have to prove it
is not working and have data to do that. That is exactly the oppo-
site of the way it should be, in my opinion. I think that would be
a more effective way and a more efficient way for Congress to go
about making its decisions.

Mr. Bentivolio. Thank you very much.

Chairman ISSA. Would the gentleman yield?

Mr. Bentivolio. Perhaps I could restate part of his question,
which is not as much on this hearing, but I think it is germane to
the gentleman from Michigan’s question. If Congress in its appro-
priation were to have all appropriations not subject to CR unless
specifically shown, in other words, when we authorize something
and we authorize it for one year, and as you know, when we go into
CRs, which happen often, essentially we keep money trapped in
things which should have expired.

If we changed our bias toward, you must specifically have essen-
tially an X next to something that says, this continues unless
amended automatically, you could end up with, perhaps in discre-
tionary spending, and even some that would be considered less
than discretionary, you could end up with perhaps as little as 80
percent of the budget subject to CR, where you have an automatic
cut to all these programs.

So instead of a CR, representing a continued resolution, substan-
tially at the same rate unless you agree, you would have a cut
automatically in all those programs with no replacements unless in
fact the budget process used those funds with new appropriations.
Wouldn’t that move the bias toward what we would call automatic
sequestration that is predetermined? Something that before seques-
tration we perhaps never thought of?

Mr. Dodaro. I would have to think about that a little bit. I will
give you a definitive answer. Offhand I would say that it holds
promise to do that.

The other thing is that there ought to he mandatory, in my opin-
ion, mandatory sunset provisions for every Federal program with
a positive reauthorization act approach. What you are suggesting
kind of goes in that direction. And for that reason I think it holds
some promise.

Chairman ISSA. Thank you. You have looked at this in the past.
Perhaps if you could dust off some of that and put those two to-
gether so that this committee could look to our brethren on appro-
priations with a mind toward current appropriations anticipating,
if you will, sunset where appropriate under appropriations and
then to the other authorization committees, the sunset inherent in
authorization that could put this into play.

Mr. Dodaro. Yes.

Chairman IsSA. Thank you. With that, we go to the gentleman
from Illinois, Mr. Davis.

Mr. Davis. Thank you very much, Mr. Chairman.

Mr. Dodaro, how are you?

Mr. Dodaro. I am fine. Nice to see you.

Mr. Davis. It is good to see you.

GAO reported in its audit of the government’s consolidated finan-
cial statements that it gave a disclaimer of opinion on the state-
ment of social insurance for 2012, 2011 and 2010 because of signifi-
cant uncertainties primarily related to the achievement of projected
reductions in Medicare costs. Some of those uncertainties relate to
whether projected statements from the Affordable Care Act would
be fully achieved, is that correct?

Mr. Dodaro. Yes, that is.

Mr. Davis. But there are other uncertainties related to Medicare
savings that contributed to the disclaimer of opinion, such as esti-
mated reductions in payment rates for physicians, is that correct?

Mr. Dodaro. That is correct, and that is, as you know, probably
for the last ten years if maybe not longer. Congress has always
waived these provision cuts that should be in place. Last year I
think they were estimated to he about a 31 percent reduction.

Mr. Davis. So I get to my point, I want to put this in perspective.
GAO is not saying that savings won’t be achieved under the Afford-
able Care Act. You are saying that the amount of Medicare savings
in the future is not a certainty, it is not absolutely known?

Mr. Dodaro. That is correct. And I might point out. Congress-
man, it wasn’t just GAO. The Social Security trustees, which in-
cludes the Secretary of the Treasury and Secretary of HHS, said
there were uncertainties and reported that with the estimates as
well as CMS’ actuary and the auditors there as well. So there is
a general consensus. But you are right, we are saying it is uncer-

tain. Because it is uncertain there are alternative estimates that
were made also, which show a swing of about $10 trillion over this
period of time on that $27 trillion original estimate.

So it is potentially significant.

Mr. Davis. And even so, there are those who, in fact, try using
that point to suggest that the Affordable Care Act is not going to
save money, when in fact, if I am correct, it already has achieved
significant savings. For example, in February, the Department of
Justice and HHS announced that they had achieved $4.2 billion in
Medicare fraud recoveries. This is the highest three year returns
on investments in the history of health care fraud and abuse pro-
grams.

I guess it is basically due to new tools to crack down on fraud
and new ways of looking at it and ferretting it out. Is that correct?

Mr. Dodaro. I would have to get back to you on that issue and
supply something for the record. I will do that.

Mr. Davis. Bottom line, I mean, we are certain, in a real sense,
that the Affordable Care Act has provided for savings and we can
be fairly certain as we project that we are going to see additional
savings as time goes on. Is that pretty close to how one can view
what the data has shown?

Mr. Dodaro. Our focus was on the future projections for the pro-
gram, and what the assumptions were and the basis for those as-
sumptions. That is what has led us to the uncertainty issue, and
others that have looked at those areas. We have not looked at the
counterpoint that you are raising right now. So I don’t have an an-
alytical answer for you on that issue. It is something that we can
take a look at.

Mr. Davis. We would be pleased if you would do that. Thank you
very much. And I yield back.

Chairman ISSA. Would the gentleman yield for a question? My
staff tells me that recovery is based on legislation from 2006 that
increased the audit. Are you speaking of some other aspect in the
Affordable Care Act that would have led to that recovery increase?

Mr. Davis. Well, the legislation was done in 2006. So we were
already privy to having it. And the Affordable Care Act, of course,
makes use of it. So we still see the savings.

Chairman IssA. I don’t understand how the Affordable Care Act
makes use of the Medicare, the Affordable Care Act hasn’t taken
effect, and the audits that are leading to greater recovery I think
are coming out of that effort by Congress. They are both good ef-
forts when it comes to trying to control costs. I just want to make
sure the record is clear, and I think Mr. Dodaro can make it clear
for us, where he thinks that savings or recovery has come from,
what efforts and what statute.

Mr. Davis. And if I might, Mr. Chairman?

Chairman IssA. Of course.

Mr. Davis. Just as we cannot be sure of how much savings there
would be, we don’t have any reason to suggest that there will be
no savings. So I think what the Comptroller is saying, we haven’t
had enough experience yet to be able to make that determination.
That is what he will look into.

Chairman IsSA. I look forward to discovering that with you.

Mr. Davis. Thank you.

Chairman ISSA. I thank the gentleman.

We now go to the gentleman from Georgia, Mr. Woodall.

Mr. Woodall. Thank you, Mr. Chairman.

I want to follow up on a question that Mr. Lynch was asking ear-
lier, talking about the importance of Congressional oversight, how
folks were able to make a difference.

One of my great frustrations is that we seem to sometimes be
Republicans against Democrats or House against Senate, as op-
posed to Article I versus Article II. Tell me about the effectiveness
of oversight in the years that you have had a chance to watch it.
Has it been Article I doing oversight over Article II, or has it been,
as Mr. Lynch suggested, the Republicans doing good oversight over
Democrats, and Democrats doing good oversight over Republicans
but not necessarily houses of the same party doing good oversight
over their Executive Branch president?

Mr. Dodaro. Over the years I have seen a variety of oversight
techniques that fall into all the different categories that you talk
about. The most effective is when Congress is united in its over-
sight over an Executive Branch function or activity, and even when
there is support from GAO or even 0MB, in some cases, on the
need to make improvements, when there is a consensus, where
facts have been developed, there is a clear record that there is a
problem that is sort of an unimpeachable kind of a problem state-
ment. People may disagree on how to solve the problem. But at
least you have the facts.

I think those types of oversight vehicles are the most effective.

Mr. Woodall. Does it take two houses in Congress doing over-
sight to achieve those goals, or can you do it in a unicameral way?

Mr. Dodaro. You can do it in a unicameral way. Unless the solu-
tion is rooted in legislation that needs to be put in place, then obvi-
ously you need both houses involved. But a lot can be accomplished
without legislation.

Mr. Woodall. Well, as you go through that high-risk list and
you look at things that have been accomplished, you do see the ef-
fective list of things that could be done strictly within an Adminis-
tration and those things that require Congressional activity. My
recollection is we don’t do nearly as well on those things that re-
quire Congressional action to get them done.

Let me talk about Medicare for just a moment. I put that doc fix
in the category of things I tell my constituents back home, if I tell
you I am going to solve this in years eight, nine and ten of the ten-
year budget window, you should just ignore me altogether. The
question is, what am I willing to do this year to make things hap-
pen.

I tell my friends in the physician community that they should
stop lobbying for the doc fix, they should let those cuts go into ef-
fect and they should let my mom and dad begin to lobby to have
the doc fix fixed. Because at the end of the day, when you reduce
the payments the physicians are receiving, it is refiected in the
quality of care that my mom and dad on Medicare receive.

Thinking about effective oversight that changes things, do you
have any examples in the time that you have been leading where
the American people have led in getting a change implemented? I
always think about catastrophic care, and Chairman Dan Rosten-

kowski, back in the day, having his car rocked by angry seniors.
And guess what, that got wonderful results here on Capitol Hill.
Have you seen the American public being the partner of GAO in
good accountability?

Mr. Dodaro. Yes, definitely. I think the example you gave, the
other one was when the premiums were raised on Part B. During
that period of time, there was a huge backlash. Another example,
just at the GAO, we have a hotline where people can call in from
the public and suggest areas where they think there is fraud, waste
and abuse. The ones that we find that are credible are the kinds
of tips we follow up on and save money in a couple of cases.

So the public can be better informed, and I think if they are bet-
ter informed they can be very helpful in providing that type of
oversight that you are speaking about.

Mr. Woodall. And if I were to call CMS today and say, my mom
and dad received a $100 charge for a doctor they never saw, could
it possibly be a legitimate charge, I am sure they would tell me
that they are working on billion dollar fraud cases and they don’t
have time to look into my $100 fraud case. Is there a threshold as
the public calls in with those tips for all that you have to do with
the limited staff that you have to do it with, what rises to the
level?

Mr. Dodaro. We will evaluate it. We wouldn’t want to do some-
thing where we spend more money than what we potentially could
save on those areas. But I would say that, to CMS, we spend the
money $100 at a time, we need to take a look at everything.

Mr. Woodall. When we are talking about trying to have effec-
tive government and efficient government, I just want you to know
how much fun it is for me to watch your team behind you as these
questions come out and you answer them. It is not just one head
as a subject matter expertise that is nodding behind you, it is four
or five heads, all of the know exactly what is going on and say, yes,
this is what that is.

Mr. Dodaro. Thanks for that feedback. I find that encouraging.
I don’t usually find out until after the hearing how well they did.

[Laughter.]

Mr. Woodall. Thank you very much. Thank you, Mr. Chairman.

Chairman ISSA. I thank the gentleman.

I believe the gentlelady from California, Ms. Speier, is next. I am
sorry, Ms. Kelly.

Ms. Kelly. Thank you, Mr. Chair.

Thank you for being here. One of the challenges in evaluating
whether agencies are duplicating efforts is the fact that until re-
cently there was no inventory of agency programs. 0MB is now re-
quired to publish a list of all agency programs. They just released
this first list in May. The list of agency programs can be found on
the website, performance.gov.

Do you believe that requiring agencies to provide information
about what programs they have will help Congress and the public
hold agencies more accountable?

Mr. Dodaro. Yes, definitely. And we would be enhanced better
if we get the complete list and it is accurate.

Ms. Kelly. Okay. One of the significant improvements made by
the GPRA Modernization Act was the establishment of perform-

ance.gov. It is a government- wide website that will allow the public
to access information about government performance.

Do you believe this has improved the transparency of information
about agency performance?

Mr. Dodaro. I think it is a good start. But as we point out in
our report, there are a lot of opportunities to have that website be-
come much more effective and helping promote transparency and
accountability and by becoming more searchable, user-friendly, et
cetera. So it is a beginning.

And I think a lot of the efforts that have been legislated by the
Congress over the years, usaspending.gov, recovery.gov, the per-
formance. gov, is important and helpful. I would encourage the Con-
gress, as we have been discussing a little bit earlier, to think about
ways that that could be even improved further, and that the Data
Act would require that.

Ms. Kelly. Also, GAO issued a report last month titled Man-
aging for Results: Leading Practices Should Guide the Continued
Development of performance.gov. One of the points that this report
makes is that moving forward, 0MB should increase its outreach
to stakeholders. GAO uses Maryland’s Governor O’Malley’s per-
formance website, StateSat, as an example: “Following the initial
creation of the State’s performance reporting website, officials in
Maryland analyzed the website’s performance metrics to get a
sense for how people were using the site, as well as the information
they were searching for. They also employed usability testing to
collect insight into the navigation and content of the website. From
these insights, they identified the need to make information on re-
lated State programs and resources more easily accessible through
the website, which is now reflected in its design.”

Do you feel that 0MB evaluated the lessons learned from State
and local websites, such as Maryland’s StateStat or Boston’s About
Results, or is there something 0MB should be doing to improve
performance data?

Mr. Dodaro. I will ask Mr. Mihm to answer that.

Mr. Mihm. OMB was certainly aware of these other websites. As
to whether or not they did a rigorous evaluation, the answer to
that is no. And one of the things that we recommend is, as you
pointed out, that they look at those websites, they look at
howto.gov, which is the Federal Government’s best practice guide
for government websites, and make sure that they are consistent
with those standards there.

The key thing they had with performance.gov, as you mentioned,
it has an awful lot of information in there, a lot of very valuable
information in there. But it is really at this time set up for inside
baseball, that is, you have to be a Fed looking for other Federal in-
formation. It is not very forward-facing to citizens or to the Con-
gress. That is the next step that they really need to take.

Ms. Kelly. I am very happy to hear that. Thank you very much.

Ms. Cummings. Would the gentlelady yield?

Ms. Kelly. Yes, I will yield.

Mr. Cummings. I am very familiar with the Maryland system
that you just talked about. Because Governor O’Malley was my
mayor, and now of course my Governor. One of the things that the
system did bring was accountability. We were able to track the per-

formance of government, how effective and efficient government
was being. But you see value in that, though, right?

Mr. Mihm. Oh, yes, absolutely, sir.

Mr. Cummings. Because before that, you didn’t know what trash
wasn’t being collected, what things were not being addressed. Now
you could actually say, okay, on zone three of the police department
we have X amount of things going on, this was the response. And
basically they would flash it up. We could come in as members of
Congress or anybody, sit there and see exactly how government
was functioning.

I don’t know how much with regard to cost that it went. But in
regard to effectiveness and the use of the taxpayers’ dollars, I
thought it was a very good thing on the part of the Governor.

Mr. Mihm. Yes, sir. In fact, a few moments ago, we were talking
about how under the Modernization Act, it took the model that has
been used in Baltimore with CityStat, StateStat, and that is now
a Federal requirement. That type of information has to be available
on performance.gov as well.

We evaluated the Federal efforts on that, and actually looked at
it from two different perspectives. First is that the question each
time as you have moved up the stat model, from CompStat to
CityStat to StateStat is, does it scale. Governor O’Malley had a
great line when he became Governor of Maryland, he said it was
a bigger ship but smaller rudder. He figured out how it changed
the government at that level.

So we were looking at that at the same level, at the Federal
level, at the stat meeting scale, do they work at the Federal level
and do they work for cross-cutting programs. We found it does
scale, that is. Federal managers and leaders of agencies, and this
is a leadership strategy, are using them. What we did not find but
are looking forward to finding as we do additional work is, are they
actually using them to coordinate cross-cutting programs.

As you know, the extent in Maryland, the beauty of that is the
Governor also set up his priority goals for the State and those are
actually what brought together a variety of State programs. Those
are reported on the website. You have BayStat, which brings to-
gether various jurisdictions and levels of government to talk about
the health of the Chesapeake Bay.

So this is a very powerful device as a leadership strategy, if it
is actually used to drive performance.

Mr. Cummings. Thank you very much, Mr. Chairman.

Chairman ISSA. I thank the gentleman.

We now go to the gentleman from Tennessee, Mr. Duncan.

Mr. Duncan. Thank you very much, Mr. Chairman.

You talked about savings in Medicare. In 1990, after 25 years.
Medicare cost 12 times more than the original projections when it
first passed. Now the costs on Medicare have quadrupled since
1990. So Medicaid has a similar history. All these Federal medical
programs, the Congress has always received very lowball estimates
on the front end. Then the costs have just exploded. Already I have
read articles saying that the so-called Affordable Care Act, which
I refer to as the Unaffordable Care Act, the cost projections are two
and three times when we originally passed.

I notice, I am sorry I had to be in another committee, and I
wasn’t here for most of your testimony, but in your testimony, Mr.
Dodaro, you say the Federal Government was unable to dem-
onstrate the reliability of significant portions of its consolidated fi-
nancial statements. And then you say another place that our work
has found that the information provided to Congress is not always
useful for Congressional decision-making, because the information
was “not clear or directly relevant or sufficiently detailed.”

Mr. Dodaro. Right.

Mr. Duncan. Then I looked at the back page of your report, and
I see almost every agency, the opinion expressed by the agency
auditor, almost all of them say unqualified. I am not an account-
ant, so I am not really clear. What exactly does that mean?

Mr. Dodaro. For 21 of the 24 departments and agencies, they
got an unqualified, clean opinion. So they are fine. Where you have
problems is DOD and DHS and another agency, they did not give
any clean opinions. But DOD accounts were over a third of the
Federal Government’s assets.

Mr. Duncan. I saw that figure, 34 percent.

Mr. Dodaro. Right. And over 20 percent of spending on the part
of their programs. So it is a huge obstacle to getting an opinion on
the consolidated financial statements.

There is a lot, also, of activity where agencies have to do busi-
ness with one another or have transactions. Treasury can’t net
those out effectively and balance the statements. In fact, they have
to add in a $20 billion net sort of plug figure in order to make the
statements balance.

And then the government-wide statements aren’t effectively rec-
onciled to the audited financial statements of the agencies that you
are holding there in your hand. So there is a discrepancy, and an
inefficiency and ineffectiveness in how the consolidated statements
of the Federal Government are compiled. So that is the reason for
the differences in the statements in that listing of agency audits.

Mr. Duncan. And there is a deadline, the Department of Defense
has been given a deadline of 2017, is that correct?

Mr. Dodaro. That is correct, for a full auditability, 2014 for an
audit of their statement of budgetary resources, which would ac-
count for how they account for their budget.

Mr. Duncan. All right. Let me ask you something else. We al-
ways hear, I read so many different articles about these unfunded
future liabilities. And I see all these figures that are way up there
in the megatrillions. Do you feel like we have a good handle on
that? Where are we headed with these unfunded future liabilities
for all the different things we promised the American people?

Mr. Dodaro. Basically, in addition to doing the audit or the con-
solidated financial statements, we do long-range simulations of the
Federal Government’s budget. And our conclusion is while the
Budget Control Act and the American Taxpayer Relief Act provided
some help in bringing down the deficit, that long term, over the
next sort of 70-year period, maybe even shorter than that, the Fed-
eral Government is on a long-term unsustainable fiscal path that
right now, debt held by the public is at 73 percent of gross domestic
product.

Historically, the 40-year average has been about 39 percent. The
demographic wave, and the main reason is for the unsustainable
path, or the changing demographics, between now and 2029, every
day, it will be on average about 10,000 Americans turning 65. They
will be hitting the Medicare program.

So we are going to go into this demographic wave. Heath care
costs, while coming down a bit, are still rising faster than gross do-
mestic product. And the combination of those factors, I mean, the
trustee estimates predict Medicare trust fund will exhaust in 2026,
Social Security trust fund will be exhausted in 2030, the disability
component of the Social Security trust fund will be exhausted in
their predictions in 2016. We are showing, unless something hap-
pens on the short term, the annual deficits coming down from
where it was in the past several years, which is a good thing, but
we still have a deficit which is adding to the cumulative debt.

So we are going into, some of our projections show between 2028
and 2034, under any scenario, we potentially, unless changes are
made, will have debt held by the public higher than 100 percent
of gross domestic product, which means we would be owing more
than we are producing in the entire economy. We have only hit
that historic high, it was during World War II, which was 109 per-
cent. So I am very concerned about the future financial path that
the Federal Government is on.

Now, we report that every year, these statements, and then we
do updates every two years. We have actually got now an account-
ing standard put into the consolidated financial statements that re-
quires a fiscal sustainability projection, a model, which is included
in this report. So the Administration agrees that we are on an
unsustainable path, and so does CBO.

Mr. Duncan. My time is up, but I heard in a meeting just this
morning that Turkey, for instance, has a debt to GDP ratio of 35
percent. And now we have this $17 trillion debt. And I think about
$15 trillion or $16 trillion economy. It is just mind-boggling. And
we keep spending money like there is no problem, or like there is
no tomorrow.

Thank you. I really appreciate the efforts that you are making
in that regard, and the way that you are trying to be a Paul Revere
about this situation. Thank you very much.

Chairman IssA. I thank the gentleman.

We now go to the gentlelady from California, Ms. Speier.

Ms. Speier. Thank you once again, Mr. Dodaro, for your out-
standing leadership. I am sure sequester is impacting you as well.
And if there is one agency that pays for itself over and over again,
I would suggest it is your agency.

What is the impact of sequestration on your agency?

Mr. Dodaro. We have been reduced in staff size about 14 per-
cent since 2010. Now, of course that was earlier than sequestration
but sequestration compounded that. So we are at our lowest staff-
ing level since 1935.

Ms. Speier. The lowest staffing level since 1935?

Mr. Dodaro. Yes.

Ms. Speier. And how has our budget grown since 1935?

Mr. Dodaro. Oh, quite a bit. And government is a lot bigger
than it was since then.

Fortunately we have been able to handle it by downsizing. So I
haven’t had to lay anybody off or furlough people. But we just don’t
have enough staff to get to all the requests in a timely manner
than we have. So I am hopeful this year we will do well. Last year
we returned $105 for every dollar spent in GAO, over $55 billion
in documented financial benefits as a result of our work, let alone
all the work we did to inform the Congress for oversight purposes.

Then we had over 1,400 other non-financial benefits changes and
laws, et cetera, that have helped improve public safety and improve
management.

Ms. Speier. Okay. In your report, you reference the lack of ac-
countability in the Army’s payroll system. In fact, you say the
Army and Defense Financing and Accounting Service could not
readily identify the full population of payroll accounts associated
with the Army’s $46 billion active duty military payroll because of
these deficiencies.

Does that mean that the Army doesn’t know how many people
it is paying for?

Mr. Dodaro. I will ask Asif Khan, who has been focusing on this.

Mr. Khan. That is correct. At times the Army does not know ex-
actly how many people they are paying, because of the lack of sys-
tems and the lack of processes and controls.

Ms. Speier. Does that mean that the Army is not able to reliably
match a soldier’s personnel file to their payroll file to make sure
that they are being paid the correct salary?

Mr. Khan. That is correct. That is a condition there.

Ms. Speier. So maybe we should alert everyone who is serving
in the Army that they should check their payroll stubs very care-
fully, because they could be being paid the wrong salary.

Mr. Khan. That is correct. There could be overpayments and un-
derpayments, based on our experience and the work that we have
done.

Ms. Speier. This is pretty outrageous, isn’t it?

Mr. Dodaro. This is not what you expect.

Ms. Speier. All right. You have also identified that certain inter-
governmental accounts were not in agreement to the tune of hun-
dreds of billions of dollars, despite the fact that 0MB and Treasury
required CFOs of 35 significant Federal entities to reconcile, on a
quarterly basis, their inter-governmental activity and balances
with their trading partners.

Are there any consequences for the failure to perform these year-
end reconciliations?

Mr. Dodaro. No meaningful ones, no.

Ms. Speier. Okay, so if a CFO of a major corporation failed to
reconcile their books, presumably they would be fired and face ac-
tion by the SEC. But because they are doing business with the gov-
ernment, they don’t have to reconcile their books, and there is no
consequence. Is that reality?

Mr. Dodaro. That is reality. That is exactly where it is. That is
why I think there needs to be more rigorous Congressional over-
sight. In fact, and Gary, correct me if I am wrong, in about 14
cases the CFO said they don’t even know why, they are not even
given an answer.

Ms. Speier. Can you provide the committee with those compa-
nies and those CFOs?

Mr. Dodaro. Yes, we can.

Ms. Speier. And I really think that this is pretty outrageous.
And if we are doing business with companies that can’t reconcile
their books and refuse to do so, then why are we doing business
with them? There should be consequences to not complying with
the requirement to reconcile the balances with their trading part-
ners. What would you recommend as a penalty? Loss of a contract?
A thousand dollars a day? What would be appropriate?

Mr. Dodaro. I think there has to be some link to the agency’s
appropriation process in order to do that. It becomes a tricky issue.
But my first recommendation is that we start with Congressional
oversight, make them explain it, and give them a deadline in which
they have to rectify the problem. Part of the issue right now is
there is not enough pressure on them to cause them to do this.
Treasury tries to control them and to work with them and to sup-
port them.

But there really isn’t enough, in my opinion. Congressional pres-
sure. I am also trying to make sure that it becomes a higher level
attention within the Administration as well. But then there has to
be some penalties in places you are talking about. That part I can
provide something for the record on, what we found to be effective.

Ms. Speier. Would you also provide it to my office?

Mr. Dodaro. Yes.

Ms. Speier. Thank you.

Chairman IssA. I thank the gentlelady. We now go to the gen-
tleman from South Carolina, Mr. Gowdy.

Mr. Gowdy. Thank you, Mr. Chairman. Because of your work on
this issue, and your leadership, I am going to yield my time to you
for continued questioning.

Chairman IsSA. You have a great future with this committee.

[Laughter.]

Chairman IssA. Mr. Dodaro, I have just a couple of wrap-up
questions on this time. One of them is, following up on Ms. Speier’s
question, now that there is no longer a Circuit City, I will use them
as an example. When I was in business, I did tens of millions of
dollars with Circuit City. Their receiving system was such that
they would receive eight boxes one day and two boxes the next day.
They would record the eight boxes with two short, and then the
next day when they received the two, they would put them in in-
ventory and never count them against the two they reported short.

So over a period of years, I ended up with millions of dollars of
money they didn’t pay me, and we were constantly showing proofs
of delivery and so on. Now, Circuit City was easy to do business
with compared to the Federal Government. So one of the questions
I have is, within this report, these plugging in of numbers, isn’t
some it inherent with these contractors delivering and the frustra-
tion of how the government receives and accounts for the goods? In
other words, doesn’t it take two to end up with this problem?

Mr. Dodaro. Definitely, yes.

Chairman IssA. I wanted to make that clear, because I think the
gentlelady was right, that we do have to be less tolerant. But I
think we have to be less tolerant of both sides.

Mr. Dodaro. Yes. I will give you a classic example. The DOD
systems, their legacy financial management systems, don’t even
identify who their trading partner is. So that is a big part of the
problem, is DOD. So that is a classic case of where you can’t nec-
essarily automatically fault the other party, because the counter-
party is potentially causing most of the problem.

Chairman ISSA. I appreciate that. We will try to work on both
sides.

In closing, on page 25 of your report, where it is Appendix I, it
says. Chief Financial Officers Act, and it shows the audit results
by agency. So for example. Commerce got an unqualified agency
audit by KPMG. And just to give you one more, Ernst & Young did
not give an unqualified audit on Health and Human Services. And
PriceWaterhouseCoopers, I want to get all of them in here some-
where, I don’t see them.

The fact is, next to most of these unqualified, and not unquali-
fied, with the exception of Justice, Labor and the National Aero-
nautics and Space Administration, National Science Foundation
and the Nuclear Regulatory Commission and the Office of Per-
sonnel Management. Those were all the exceptions. And the De-
partment of Energy.

With the exception of those I just named, all these others have
a check mark that I want to make sure we say what it means. It
says, “Agency auditor reported material weakness or non-compli-
ance.” Now, I oversaw both public and private companies. So I am
very aware of what my audit is, and I know that there is always
something that can be improved.

But when it says material weaknesses and non-compliances, that
really is not truly an unqualified audit. That is an unqualified ex-
cept for this qualification, isn’t that true? These are not clean audit
results.

Mr. Dodaro. These are a separate reporting that is required
under the Federal Financial Management Improvement Act, where
the agencies have to demonstrate that they can record things that
is a standard general ledger transaction and transaction levels, and
that their systems will comply with accounting standards. And
what this basically means is that the agencies compile their year-
end financial statements, many using manual procedures and docu-
mentation. But their systems are not up to standards in producing
timely, reliable information throughout the year.

Chairman IsSA. Let me put this into terms the private sector
might understand, and you correct me if I am wrong. For example,
at Commerce or Defense, any number of these agencies that have
these unqualified but material weaknesses, one, material weakness
may mean that fraud can go undetected. You might have balance
sheet that is accurate, but you may have been ripped off, that prop-
er accounting for whether people actually put in time or don’t put
in time, they get paid, and you know how much they got paid, but
they may not have actually done the work.

All of those are examples, or some of those are examples of mate-
rial weaknesses in that yes, you have given us a financial state-
ment that shows where you are, how much you have spent and
how much you have, but you through haven’t actually told us
whether the money is flying out the back door through waste, pur-

chases that are paid for on products not received, those are all ma-
terial weaknesses that can be and are likely included in many of
these reports, isn’t that true?

Mr. Engel. That is correct. Essentially what the unqualified
opinion on financial statement tells you is that they have a process
in place to produce a set of financial statements at year-end that
will appropriately account for the activity in accordance with gen-
erally accepted accounting principles. It does not speak for the con-
dition of their underlying internal controls.

Chairman IssA. So I think for the public, at the close of this, I
want to say, as chairman, that I look forward to us having all the
agencies, including the Department of Defense, have unqualified fi-
nancials. But it actually bears little, it is only a starting point, for
accounting for every penny for the American people so that we
know it is actually being exchanged in return for the value that
was agreed to, isn’t that correct?

Mr. Dodaro. Yes, that is exactly correct. And actually, the origi-
nal legislation, the Chief Financial Officers Act, goes to that very
point about having timely, reliable information, good controls, and
the audited financial statements are only a step, a tool to achieve
that longer term, more complete goal.

Chairman IsSA. I thank you for your testimony today. It has
been extremely valuable. I won’t say that it is as optimistic and up-
lifting as we would like. But as always, you give us the truth, even
if it isn’t what we would love to hear.

And we stand adjourned.

[Whereupon, at 11:36 a.m., the committee was adjourned.]

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